Old vs New Tax Regime: Who should move to the New Tax Regime from the old one?

financialexpress.com:

The new tax regime was introduced by the Finance Minister in the Union Budget 2020. This regime, also known as the simplified tax regime, offers lower tax rates with fewer deductions and exemptions, compared to the old tax regime. The income tax provisions allow an individual to choose either of the two regimes. The choice can be made every year except where an individual has a business or a profession.

Transitioning from the old tax regime to the new one primarily hinges on key factors such as income level, potential tax savings, deductions, overall tax planning, among others. Under the new regime, lower tax rates can translate to reduced tax liabilities for many taxpayers; however, the trade-off lies in the elimination or reduction of various deductions and exemptions that are available under the old regime.

“To evaluate whether to switch to the new tax regime, it is important to assess potential tax savings by comparing tax liabilities under both regimes, factoring in income levels, deductions, exemptions and applicable tax rates. Those who stand to benefit from lower tax rates in the new regime may find it advantageous to make the switch. Illustratively, resident salaried individuals with gross income up to INR 7.5 lakh have no tax liability under the new tax regime. Furthermore, employees earning more than INR 5 crore may benefit under the new regime due to lower surcharge,” says Divya Baweja, Partner, Deloitte India.

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It is also important to evaluate the impact of deductions and exemptions available under each regime. While the old regime offers a plethora of deductions and exemptions, the new regime offers fewer options.