After Funds 2025, must you go for outdated or the brand new tax regime? – Firstpost

Within the yr 2024, when a person filed the return of revenue, the excitement phrase round was whether or not to go for “new regime” or to pay tax beneath “outdated regime”. Salaried people at all times appear to be debating about which regime can be helpful at their revenue degree.

2. Evolution of “new regime”

Till the Yr 2020, the idea of “new regime” of taxation was not present. There was just one slab fee of taxation relevant for people, which we now loosely time period as “outdated regime”. Subsequently, Part 115BAC was launched, which supplied the people taxpayers with an choice to decide on between the pre-existing tax charges, and new concessional charges. Nonetheless, the caveat was that taxpayers choosing the concessional fee would lose out on variety of tax saving alternatives (which existed by the use of exemptions/deductions). Over 70 exemptions and deductions accessible beneath the outdated regime, among the distinguished ones together with:

• Home Lease Allowance beneath Part 10(13A)

• Depart Journey Allowance beneath Part 10(5)

• Curiosity of House Mortgage beneath Part 24(b)

• Investments made in Provident Funds/ELSS Schemes/Insurance coverage Premium beneath Part 80C

• Medical insurance coverage beneath Part 80D

• Investments made in pension schemes

Whereas there have been financial limits on the full exemptions and deductions which could possibly be claimed beneath the related provisions, with cautious tax planning, people may optimize their taxes.

Nonetheless, with the passage of time, consequent amendments made to the Earnings Tax Act have indicated that the Authorities wished people to forego the outdated regime, and shift to the brand new regime. A few of these indications will be gathered from the next occasions:

• Within the Union Funds 2023, commonplace deduction of INR 50,000 which was hitherto accessible solely beneath the outdated regime was prolonged to the brand new regime as effectively.

• Within the Union Funds 2024, commonplace deduction beneath the brand new regime was elevated to INR 75,000. Nonetheless, the usual deduction for the outdated regime remained INR 50,000.

• With impact from Evaluation Yr 2024-2025, the brand new regime was made the default regime for all particular person taxpayers, which suggests to go for outdated regime.

The brand new regime is considerably less complicated, because it takes away the necessity to have interaction in tax planning, offering of proof and submitting the related kinds. Due to this fact, the intention of the Authorities to advertise the brand new regime is abundantly clear. Whereas it initially appealed to people who didn’t profit from tax-saving devices, and most well-liked a hassle-free, simplified submitting course of, it has slowly change into the popular route for overwhelming majority of tax-payers. The shift from the outdated system encouraging long-term financial savings and investments, to the brand new system aiming for simplicity and ease of compliance is evidently seen.

3. Adjustments proposed in Funds 2025

With respect to the modifications introduced by the Finance Minister within the Funds Speech on February 1, 2025, a number of constructive revisions have been made to the slab charges. Nonetheless, perusal of the high quality print would present that such modifications are restricted to “new regime” solely and thus, the “outdated regime” stays the identical with no modifications by any means. The brand new slab charges are as beneath:

This funds has thus elevated the fundamental exemption restrict to INR 4 lacs and have additional enhanced the rebate admissible beneath Part 87A to make revenue upto INR 12 lacs tax free. Over and above, the admissible commonplace deduction for salaried people of INR 75,000 makes this tax-free revenue threshold at INR 12.75 lacs.

2. Conclusion

A comparability of the 2 regimes would clearly point out that the intention of the Authorities is to streamline the method and making certain an easier tax surroundings to make sure compliance. Whereas evidently there are specific people for whom, the outdated regime would proceed to be beneficial, nonetheless, doing so would require arduous tax planning, making use of a mess of exemptions and deductions and submitting of the related kinds resulting in further compliance value. The brand new regime, undoubtedly, goals to enhance tax compliance. It simplifies the method of submitting returns, and the probabilities of errors and misreporting are minimised. It goals to create a streamlined method for the taxpayers, resulting in long run tax compliance and certainty. With the brand new direct tax code being slated to be introduced within the coming week with 50 per cent much less provisions, it’s possible that outdated regime would quickly change into a chapter in tax historical past.

The writer is Companion, Shardul Amarchand Mangaldas & Co. Views expressed within the above piece are private and solely these of the writer. They don’t essentially mirror Firstpost’s views.