The implementation of this rebate means that the old tax regime, featuring progressive tax slabs of 5%, 20%, and 30%, along with deductions for tax-saving investments, is less attractive for many taxpayers.

According to a report by The Times of India, the finance ministry advocates separating investment and savings schemes from income tax, encouraging taxpayers to make choices based on individual financial benefits.

For individuals with incomes up to ₹12 lakh, the new tax regime provides significant advantages, even after considering full deductions and exemptions such as ₹5,75,000 and 30% of salary as house rent allowance.

Comparing the Old and New Tax Regimes

While the new tax regime offers several benefits for those earning up to ₹12 lakh, certain situations make the old regime superior.

For example, someone earning ₹12.75 lakh is unlikely to fully invest ₹5.25 lakh in tax-saving schemes, claim ₹3,82,500 as house rent allowance, and take a standard deduction of ₹9,57,000, a scenario that must be considered.

• The new regime results in higher taxes for incomes exceeding ₹12 lakh. However, the old regime is advantageous if taxpayers invest ₹5.25 lakh in tax-saving schemes.
• Earnings up to ₹13.75 lakh without house rent allowance benefit more under the old tax system, requiring ₹5,25,000 in savings schemes. This remains true for incomes up to ₹15.75 lakh, provided the same amount is saved. Even with house rent allowance, the old system is more beneficial.
• Individuals earning ₹20 lakh ( ₹20.75 lakh for salaried workers) find the new tax regime more advantageous. Despite investing ₹5.25 lakh in savings schemes, the old system requires ₹2.4 lakh in tax, whereas the new system demands only ₹2 lakh, with no deductions allowed.
• Experts quoted by The Financial Express state that for incomes above ₹24.75 lakh, the new tax regime is only beneficial if total deductions and exemptions, excluding standard deductions, are less than ₹8 lakh.
• A taxpayer earning ₹24 lakh under the new regime saves ₹60,000. In contrast, investing ₹5.25 lakh in savings schemes under the old regime results in ₹3.60 lakh in tax compared to ₹3 lakh under the new system.

What Does This Mean for You?

This detailed comparison highlights the importance of considering your specific financial situation before choosing a tax regime. Individuals with lower to middle incomes might benefit more from the new tax regime due to the ₹60,000 rebate.

However, those with higher incomes and significant investment potential in tax-saving schemes might still find the old tax regime more advantageous.

For a tailored tax planning strategy, consulting a financial advisor is advisable. They can provide personalized advice based on your income, savings, and investment goals.

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