Difference Between Comprehensive And Bumper to Bumper Car Insurance

In India, buying car insurance is more than just a legal requirement. The right policy can safeguard your vehicle and financial security. Whether you use your car to pass through the usual city traffic or for long road trips, having the right car insurance can protect you from unexpected expenses and liabilities. However, with so many options available, choosing the right type of coverage might not be easy.

Where the old tax regime offered extended tax benefits for investments made throughout the year, the new tax regime simplified the tax rates but excluded tax exemptions and deductions.

However, taxpayers can select between the old and new tax regimes before the start of the new financial year. Understanding the difference between old and new tax regimes helps make an informed decision and save on taxes. This article will help you by showing the comparison between new and old tax regimes.

Introduction to New Tax Regime

The new tax regime in India represents a significant shift in the income tax system, aiming to simplify tax compliance and reduce the burden of tax planning. The new tax regime was introduced under Budget 2020, revising the tax rates on salary brackets and eliminating more of the exemptions and deductions possible under the old tax regime.

The new tax regime has been in effect since 1 April 2020. Later, the Budget 2023 suggested some revisions to introduce a better tax structure. Currently, the new tax regime has been designated as the default tax regime; however, taxpayers can opt for the old tax regime if they want to use it.

Key Advantages of New Tax Regime

1. Simplified Tax Slabs

Opting for new tax regime avails you reduced tax rates on different income tax slabs while you have to give up on various deductions and exemptions.

1. Tax Rebate Limit Increased

The new tax regime has increased the tax rebates for income up to Rs. 7 Lakhs, which was Rs. 5 Lakhs in the old tax regime. This implies that individuals with an annual income of up to Rs. 7 Lakhs won't pay taxes.

1. Default Selection

The new tax regime is set to default for the new financial year starting in FY 2024. If you wish to continue with the old tax regime, you will have to select it specifically.

1. Standard Deductions

• For Salaried Income: The standard deduction of Rs. 50,000 remains applicable as allowed under the old tax regime. Hence, while calculating the tax-free income, you can subtract Rs. 50,000 from the gross, resulting in a total of Rs. 7.5 Lakhs of tax-free income.
• For Family Pension: Individuals receiving a family pension from the government or a private organization are eligible for a deduction of Rs. 15,000 or ⅓ of the pension, whichever is lower.
• No LTCG Benefit: The new tax regime does not offer Long-Term Capital Gains (LTCG) benefits on debt funds invested after 31 March 2023.
• Higher Leave Encashment Exemption: The leave encashment exemption limit for non-government employees has been increased from Rs. 3 Lakhs to Rs. 25 Lakhs.
• Reduction in Surcharge for High Net Worth Individuals: The surcharge charges for those with an annual income of more than Rs. 5 Crores are cut down to 25%, while previously it was 37%. This change lowers the tax rates from 42.74% to 39% for the high net worth individuals.

Introduction to Old Tax Regime

The old tax regime in India refers to the traditional income tax system that was in place before the introduction of the new tax regime. Under the old regime, the taxpayers have the option to claim deductions under various sections of the Income Tax Act, such as Section 80C for investments in specified instruments like Provident Fund, PPF, ELSS, etc., Section 24 for home loan interest, and Section 80D for health insurance premiums.

Also, the benefits payouts received are exempt from tax under Section 10 (10D) of the Income Tax Act, 1961.

The old tax regime has five tax slabs with a limit of 0% to 30% rates.

Key Advantages of Old Tax Regime

Here's the list of key features of the old tax regime slabs:

1. Old Tax Regime Slabs

The table below shows the applicable tax slab rates as per the different earning brackets of an individual:

1. Exemptions and Deductions Under Old Tax Regime

• Taxpayers can claim deductions up to ₹1.5 lakh per annum for investments in specified instruments such as EPF, PPF, ELSS, NSC, SSY, life insurance premiums, repayment of the principal amount of a home loan, tuition fees for child education, and the 5-year FB scheme.
• The premiums paid towards the health insurance policies for self, spouse, parents, and children can claim deductions under Section 80D of the Income Tax Act. A maximum of Rs. 25,000 deduction for self, children, and spouse, and Rs. 25,000 for parents is allowed. The premiums paid towards the health schemes for senior citizens are eligible for a deduction of upto Rs. 50,000.
• Deduction of leave travel allowance.
• Deduction of the actual amount of house rent allowance.
• Standard deduction of Rs. 50,000 for salaried employees.
• The interest earned from the savings account deposits under Section 80 TTA/ 90 TTB.
• Donations made to specified funds and charitable institutions are eligible for deductions, subject to specified limits and conditions.

1. LTCG Benefits

The long-term capital gains (LTCG) benefits are available for debt investments.

1. Tax Rebate

The taxpayer gets a tax rebate on income of up to Rs. 5 Lakhs under Section 87A.

Comparison: New Tax Regime Vs Old Tax Regime

Since the new tax regime was introduced, there's been a debate about which tax regime is better and what to choose. From a financial point of view, since every individual has a different set of financial goals and investment objectives, one tax regime may not be universally beneficial for all. It depends on income, available exemptions, and deductions.

Let's have a look at how the taxes are calculated under the old and new tax regimes:

Say, a salaried individual under 60 years old with an annual income of Rs. 18 Lakhs. When no tax-saving investments were made within the financial year, the tax is calculated for FY 2024-25 as under:

Now, suppose the individual makes a total investment of 2 Lakhs, i.e., 1.5 Lakhs for investments under Section 80C of the Income Tax Act, and an additional Rs. 50,000 for the premium paid towards a health policy for parents above 60 under Section 80D. The calculated tax liability is available as follows:

* The above calculated taxes result from using the online income tax calculator. You can calculate the taxes according to your tax liability.

Which Tax Regime is Better to Choose: Old or New Tax Regime?

The best way to answer the above question is to identify your income level, consider the investments that you can make within a financial year, and determine which slab you lie in.

You can compare the old and new tax regimes based on your tax-saving liabilities and have your answer. The right approach is to choose the regime having the lower tax liability.

While the old tax regime involved more paperwork, the prescribed investment had to be declared within a specific period.

Critically consider the pros and cons of both new and old tax regimes and the overall tax benefits you can achieve. Use the income tax calculator to help you estimate the amount to make things easier