Do You Know Why More People Are Choosing the New
Tax Regime?
CA R Jegadeesh, Founder Partner,
Jegadeesh & Jefferson chartered Accountants
The “New
Tax Regime,” introduced by the Indian Income Tax Department a few years ago,
has now become the preferred choice for most taxpayers. Due to its simple
structure, lower tax rates, and hassle-free process, nearly 88 percent of
individual taxpayers are currently opting for this regime.
Under the
earlier old tax regime, taxpayers were required to claim various deductions,
provide investment proofs, submit bills, and maintain multiple documents.
To avail tax benefits, investments had to be made in instruments like Public
Provident Fund (PPF), ELSS mutual funds, etc. Premiums for life insurance and
health insurance policies also had to be paid and supported with documentary
proof.
As a result, the process of filing income tax returns became complicated and
time-consuming.
However,
the New Tax Regime has completely eliminated these complexities. There is no
need to submit any investment proofs. Tax can be paid directly based on income
slabs at pre-determined lower rates. This simplicity is the biggest attraction
of the new regime.
Key Reasons Why More People Prefer the New Tax
Regime
1. Simple
and Easy Process
There is no need to collect documents or calculate multiple deductions. This
makes tax filing extremely easy and convenient.
2. Lower
Tax Rates
Compared to the old regime, the new tax regime offers reduced tax rates across
several income slabs. This directly benefits individuals with moderate income
levels.
3. No
Compulsion to Invest
There is no obligation to make unnecessary investments just to save tax.
Individuals are free to invest according to their financial needs and goals.
4.
Time-Saving
Since document verification and paperwork are minimal, the overall workload is
greatly reduced.
5.
Suitable for the New Generation
This regime is particularly convenient for young professionals, people with
limited interest in investments, and those who prefer a simple tax structure.
Major Tax Benefits Available Under the New Tax
Regime
Although
most deductions have been removed under the new regime, some important benefits
continue to be available:
- Standard Deduction – Salaried individuals are eligible for a basic standard deduction.
- Family Pension Deduction – A specific deduction is
allowed on family pension income.
- NPS Employer Contribution – Tax exemption is
available on contributions made by the employer to the NPS account.
- Rebate under Section 87A – Individuals with annual
income up to ₹12 lakh are eligible for full tax rebate.
- Home Loan Interest Deduction – If a house purchased
through a home loan is rented out, interest paid on the loan up to ₹2 lakh
per financial year can be claimed as deduction.
These
benefits help even middle-income taxpayers save a significant amount of tax
under the new regime.
Freedom to Choose the Old Tax Regime
However,
for individuals who have made substantial investments and claim benefits like
HRA, home loan principal and interest deductions, the old tax regime may still
be more beneficial.
Therefore,
taxpayers continue to have the freedom to choose either the old or the new tax
regime while filing their income tax returns.
Switch
between the old and new tax regimes..!
Salaried
individuals can change their tax regime every year. However, individuals having
business or professional income can switch from the new tax regime to the old
tax regime only once in their lifetime by filing Form 10-IEA. After opting for
the old tax regime, they get only one opportunity to switch back to the new tax
regime again.
Conclusion
The New
Tax Regime has been designed with the principle of “Lower Taxes and Lesser
Complications.” It is ideally suited for people who prefer simplicity and
convenience. That is why the majority of taxpayers today are opting for this
regime.
Ultimately,
the choice between the old and new tax regimes depends on an individual’s
income structure, investment plans, and financial goals. Carefully evaluating
both options and choosing the most suitable one is the key to making a wise
financial decision.
CA R
Jegadeesh, Founder
Partner, Jegadeesh
& Jefferson chartered Accountants
Read articles written by Mr. CA R Jegadeesh in
Nanayam Vikatan, a leading personal finance magazine https://bit.ly/4r4S9kY
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