Budget Day garners considerable attention due to its impact on the nation’s financial landscape. In recent years, tax regimes have undergone significant changes, presenting taxpayers with different options and considerations. As the new budget was unveiled, it had sparked a diverse range of opinions and comparisons. Weighing the benefits and drawbacks of the old and new tax regimes will help you decide which tax regime is better for income above 30 lakhs and for different income brackets.
Old vs New: Which Tax Regime is Better for 30 Lakhs?
It might seem simple on the surface, but it isn’t as easy to decide what tax regime is better, the new one or the old one. The New tax regime has better slabs and rates than the older one but the older one had the provision of getting the taxpayers exemptions and reductions. So, we are at crossroads here with a tie between the two but there needs to be some way to find out which tax regime is better for 30 lakhs or other amounts.
People who were earning above 30 lakhs earlier were subject to a 30% tax and the new tax regime has changed that percentage by 0. However, with deductions and exemptions out of the picture, the scenario does change. An income of 30 lakhs was eligible for exemptions/deductions of up to 4,25,000 rupees which left us with a taxable amount of 25,75,000 rupees and the income tax ultimately came to 5,85,000 rupees.
If you take out these deductions and exemptions from the old tax regime, then the tax amount came to 7,12,500 rupees. And now with the new tax regime since there are again no deductions or exemptions to rely on the full amount is taxable and so the tax amount comes to 6,37,000 rupees.
So, with the amounts that lay in front of us, it is easy to understand that the older tax regime with deductions and reductions is better for people with 30 lakhs income.
Which Tax Regime is Better for 20 Lakhs?
Again, when we check which regime is better for 20 lakhs, we have the same problem in hand as we had for 30 lakhs. The tax rate remains unchanged while the exemptions and deductions are out of the picture. But since we have taken a step down in terms of income this also impacts reduction/exemption that goes down as the income comes down.
So let’s say we use the older tax regime with deductions and exemptions for a salary of 20 lakhs into consideration. To benefit from the older tax regime deduction claimed by such a person needs to be more than 4,25,000 rupees. The person would pay 2,96,400 as tax in both of these cases, however, if the person can get a dedication of more than 425k then they would benefit from the older tax regime.
Which Tax Regime is Better for 25 Lakhs?
We looked at which tax regime is better for 30 lakhs and 20 lakhs. For 25 lakhs again we need to remind ourselves that exemptions and deductions are out of the picture and at the same time the tax slab of 30% is still in place from the older regime. So, in the case of 25 lakhs, the story is much different from what it was in the previous two cases.
If you have an income of 25 lakhs, then it might be beneficial for you to pursue the new or the old tax regime depending on the number of deductions and exemptions you can claim. It is not a question of which tax regime is better for 25 lakhs but rather about the amount that you can get deducted from your taxable income.
As we saw in the case of 20 lakhs income the threshold or break-even point was at 4,25,000 rupees similarly if you cross the break-even point in claiming deduction/exemption in case of 25 lakhs and get more maximum possible deduction then the old tax regime works out for you and if not then it is better to go with the newer tax regime.
Which Tax Regime is Better for 15 Lakhs?
A person with a 15-lakh income would fall under the tax bracket of 20% but earlier they were subject to a 25% tax. But again, we can’t let go of the deductions and exemptions out of our minds since they are major game changers. If the exemptions and deductions are used sensibly and to the maximum, then they go a long way in establishing the older tax regime better than the newer one.
As per the newer tax regime, a person with an income of 15 lakhs is subject to pay 1,45,600 rupees in tax when cess is also included. However, under the old tax regime with the deductions and exemptions in place, the taxable amount itself came down to 10,75,000 rupees and when the tax was calculated along with cess then the final figure would come to a total of 14,04,000 rupees and in the existing tax regime the tax payable would be 1,95,000 rupees so you see which tax regime is better for 15 lakhs.
Which Tax Regime is Better for 40 Lakhs?
Ever since we looked at which tax regime is better for 30 lakhs; we have been repeatedly mentioning the fact that the old tax regime had deduction and exemption benefits while the new one has slab and rate benefits to offer. However, for a person with an income of 40 lakhs, the outcome is different from what it was for other income groups falling under the 30% tax bracket.
Under the old tax regime, a person earning 40 lakh gets exemptions and deductions which bring their taxable income down which is not the case with the newer tax regime.
So, it is safe to say that taxable income becomes lesser under older tax regimes. However, the tax amount under the old regime comes to 8,98,500 rupees with additional 35,940 rupees in 4% education cess and under the new tax regime the tax amount comes to 8,85,000 rupees and the 4% education cess adds another 35,400 rupees to the total. So, you see which tax regime is better for 40 lakhs.
Which Tax Regime is Better for 10 Lakhs?
While we have looked at a lot of high figures, how does it work out for lower-income people remains to be seen? What benefits the older tax regime or newer tax regime? Without forgetting the exemption and deduction implications and the slab changes let’s see which tax regime is better for 10 lakhs.
If the gross income is understood to be 10 lakhs, then the various exemptions and deductions under the older regime bring down the taxable income which is not the case with the new tax regime. And so under the old tax regime, a person earning would pay a tax amounting to 62,500 with a cess of 2,500 rupees added to make it 65,000 rupees. But the same person under the new tax regime would pay an income tax of 75,000 plus 3,000 rupees in cess bringing their total to 78,000 rupees.
Which Tax Regime is Better for 7 Lakhs?
As straightforward as the question is as to which tax regime is better for 30 lakhs, we all saw how there are a few things to consider before you end up making that decision. Similarly, the case of people making 7 lakhs a year is also now that simple to answer. While the newer tax regime allows people earning rupees 7 lakhs and less to not pay any taxes, the older regime might be better for them.
When you ask which tax regime is better for 7 lakhs the answer is a bit twisted. The allowances and deductions/exemptions offered by the older tax regime can be a lifesaver more often than not.
Let’s say a person earns 8 lakh rupees but they are allowed a deduction of 2 lakhs on various grounds this then changes their taxable income to 6 lakhs, however, under the new tax regime with no exemptions the person has not much room to chop down taxable income. So under the old tax regime, this person pays 32,500 rupees without cess and under the new tax regime, the person pays 35,000 rupees.
The comparison between the old and new tax regimes for income of 30 lakhs ultimately depends on individual circumstances and preferences. Factors such as income sources, deductions, and long-term financial goals should be considered to determine which regime aligns better with one’s overall tax planning strategy.