Old Vs New Tax Regime: How To Choose The Better Option Using An Income Tax Calculator

Prior to the filing of income tax returns, it is necessary to compare both the old and new tax regimes to see which one provides the least tax outgo. Taxpayers (except those who are earning from business) have been able to opt between the two tax regimes since 2020, with the new tax regime being the default under the Finance Act, 2023. The choice is not that simple, though, as each regime has varying advantages.

Under the old tax regime, the taxpayer can claim several deductions and exemptions, including those under Section 80C for investments in EPF, ELSS, and PPF, Section 80D for payment of health insurance premiums, and Section 24 for interest on a home loan. However, the new tax regime has lower rates of taxation but forces the taxpayer to surrender these deductions. Thus, for those taking large deductions, the old regime may be a better option.

In order to calculate under which regime a taxpayer pays lower tax liability, the taxpayers have an income tax calculator provided by the Income Tax Department's official website. Here are the steps:

Find the Tax Calculator: Go to the official website of the Income Tax Department and check for the tax calculator under the comparison between old and new regimes.

Enter Basic Details: Choose the taxpayer category (individual, HUF, AOP, BOI, or AJP), age category, and residential status (resident or non-resident). This facilitates correct calculations according to the relevant tax slabs.

Input Income Details: Input your total income, i.e., salary, income from other sources, and income from house property. This is used to calculate the total taxable income under both regimes.

Add Exemptions and Deductions (if applicable): If considering the old tax regime, input eligible deductions under Sections 80C, 80D, and 24, among others. If opting for the new regime, skip this step, as deductions are not allowed.

Compare Tax Liabilities: Once all details are entered, the calculator will generate tax liabilities under both regimes. This will show which option results in lower tax payments.

Because the new tax system has lower rates but no deductions, it is favourable for individuals who do not have large exemptions to avail. But taxpayers with large deductions under 80C, 80D, or home loan interest will prefer the old regime as it is tax-efficient. The secret is to evaluate personal income and eligibility for deduction prior to the decision.

Thanks to the presence of an online tax calculator, it has become easier to choose the right tax regime. By putting in relevant information, taxpayers can make a well-informed decision and maximise their tax outgo. Getting this calculation done prior to filing the return can avoid undue tax outflows and assist in proper financial planning.