How Your Income, Investments Are Taxed

Your choice between the Old and New Tax Regimes should reflect your financial strategy and investment goals, notes Ramalingam Kalirajan

India's income tax framework allows taxpayers to select between two regimes -- the Old Tax Regime and the New Tax Regime.

Recent updates, particularly in Union Budget 2024, have introduced changes aimed at simplifying the process while redefining tax-saving opportunities. Let's dive into the key highlights and details to help you make the right choice.

New Tax Regime Highlights

The New Tax Regime is now the default option. It offers simplified tax slabs and fewer deductions, making tax compliance easier.

Revised Slab Rates Under the New Regime:

• Income up to Rs 300,000: Nil
• Rs 300,001 to Rs 600,000: 5 per cent
• Rs 600,001 to Rs 900,000: 10 per cent
• Rs 900,001 to Rs 1,200,000: 15 per cent
• Rs 1,200,001 to Rs 1,500,000: 20 per cent
• Above Rs 1,500,000: 30 per cent

Perks and Limitations

• Rebate for Incomes Up to Rs 700,000: Taxpayers with incomes up to Rs 700,000 pay zero tax under this regime due to rebates.
• Standard Deduction: Salaried individuals benefit from a standard deduction of Rs 75,000.
• No Deductions: Investments like PPF, ELSS, and home loan interest deductions are excluded.

Old Tax Regime Highlights

The Old Tax Regime is ideal for those who prefer leveraging deductions and exemptions.

Slab Rates Under the Old Regime:

• Income up to Rs 250,000: Nil
• Rs 250,001 to Rs 500,000: 5 per cent
• Rs 500,001 to Rs 1,000,000: 20 per cent
• Above Rs 1,000,000: 30 per cent

Advantages

Deductions under Sections 80C, 80D, and more are available, making it suitable for those who actively plan tax-saving investments.

Capital Gains Tax Updates

In Budget 2024, the government redefined capital gains taxation. The new rates are effective for sales post July 23, 2024:

How to Choose the Right Regime?

• Old Regime: Ideal for those with investments in tax-saving instruments, such as PPF, EPF, or housing loans
• New Regime: Best for those who prioritise simplicity and fall into the lower tax brackets

Key Considerations:

Switching between regimes is allowed annually for salaried individuals but limited to once in a lifetime for taxpayers with business or professional income.

Compare tax liabilities under both regimes to determine which saves you more.

Conclusion

Your choice between the Old and New Tax Regimes should reflect your financial strategy and investment goals. The new regime's simplicity may appeal to many but if deductions play a significant role in your tax savings, the old regime remains a strong contender.

For those navigating capital gains, the new rates emphasise holding periods and asset categories, so plan accordingly.

• You can ask rediffGURU Ramalingam Kalirajan your questions HERE.

Ramalingam K, an MBA in Finance, is a Certified Financial Planner. He is the Director and Chief Financial Planner at holisticinvestment, a leading financial planning and wealth management company

Disclaimer: This article is meant for information purposes only. This article and information do not constitute a distribution, an endorsement, an investment advice, an offer to buy or sell or the solicitation of an offer to buy or sell any securities/schemes or any other financial products/investment products mentioned in this article to influence the opinion or behaviour of the investors/recipients.

Any use of the information/any investment and investment related decisions of the investors/recipients are at their sole discretion and risk. Any advice herein is made on a general basis and does not take into account the specific investment objectives of the specific person or group of persons. Opinions expressed herein are subject to change without notice.