Should you choose old tax or new tax regime?

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The financial year is approaching its end and taxpayers become become increasingly anxious about tax planning. All the planning is usually done at the beginning of the year.

Taxpayers invest money in tax saving instruments. But if nothing has been done, taxpayers get worried. There are several questions. Which tax regime to choose? Where to invest to save taxes?

Proof for tax-saving investments needs to be provided in two months.

Now, without investments, where will the proof come from? If there’s no proof, then, tax will be deducted.

Do you also face these problems? Haven’t you done tax planning for the financial year 2023-24 yet? Then get involved in this work now.

But before that, let’s learn about some essential strategies for tax planning that will help you…

First, consider the tax regime, i.e., the tax system.

We have two tax regimes  – the Old Tax Regime and the New Tax Regime. The taxpayer’s choice between the Old and New Tax Regimes depends on his preference for tax deductions.

In the New Tax Regime, the tax rate is lower, but deductions like HRA, 80C, 80D won’t be available. Under the new regime, there is no tax on income of up to 7 lakh rupees. Similarly, like the Old Tax Regime, there is a standard deduction of 50 thousand rupees available under this regime for FY24.

This means if your income is up to seven lakh rupees, no tax will be levied.

Meanwhile, in the Old Tax Regime, income up to five lakh rupees is tax-free.

From FY24, the New Tax Regime has been made the default regime, meaning it will be pre-selected in the income tax return form.

If you want to take advantage of deductions like 80C, 80D, HRA, you should choose the Old Tax Regime. If you have a home loan going on, or a term insurance, or PPF, or health insurance policy and you want benefits on house rent allowance, then the Old Tax Regime is better for you.

To find out Which regime is beneficial for you?

tax calculator screen recording in  You can use the Income Tax Calculator on the Income Tax Department’s website. tax calculator screen recording out

The most common deduction under the Old Tax Regime is under Section 80C.

Under Section 80C of the IT Act, taxpayers can claim a deduction of up to one and a half lakh rupees on investments.

What you invest is subtracted from your income, and then tax calculation is done, reducing your tax amount.

This includes your investments in Public Provident Fund, Employees’ Provident Fund, Equity-Linked Savings Scheme, 5-year Tax Saving FD, Sukanya Samriddhi Yojana aqnd the list goes on .

Additionaly, by investing in the National Pension System, you can claim an additional deduction of up to 50 thousand rupees under Section 80CCD(1)B.

All these investments not only save taxes but also help in future savings and retirement planning.

Your contribution in health insurance policy not only reduces the burden of medical expenses but also saves taxes.

Under Section 80D, you can claim a deduction of up to 25 thousand rupees on health insurance premiums.

This includes coverage for you, your spouse, and children.

While, senior citizens will get a deduction of 50 thousand rupees on this. If you and your parents are both in the senior citizen category, you can claim a deduction of up to one lakh rupees.

If you have taken a home loan to buy a house, you can opt for the old tax regime. You can get tax deduction benefit on both the principal and interest.

Under section 24, IT Act, you can get up to Rs 2 lakh deductions on principal amount of your home loan. You can also claim additional deductions under section 80C on interest that you have paid on the home loan.

In addition to this, under the old regime, deductions are available for donations made and expenses incurred on specific medical treatments.

Tax planning should ideally start at the beginning of the financial year. However, even if you are a bit late like Ajit, don’t worry, you still have some time.

If you delay beyond December, it could be problematic.

Last-minute tax planning may lead to mistakes in choosing investments. First, use the income tax calculator to check which tax regime is suitable for you.

If you don’t want to invest to save taxes or have a lower salary, you can opt for the new tax regime.

If you have a home loan, other different investments under Section 80C, additional investments in NPS, the old tax regime may be better for you.

If you are a salaried individual, you can switch between regimes as many times as you want.