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New and old tax system: Before taking any decision, ask yourself these 4 questions

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3 years ago

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In the Budget 2020, the central government has given an alternative arrangement of seven slabs to taxpayers for tax payment. The confusion is whether the old tax system will be beneficial for you or new, its calculation is necessary. Let us consider this.

Highlights
  • Central government offers new tax regime with a low tax rate in budget 2020

  • Total seven slabs in the new tax system but the deduction will not benefit

  • Which of the two tax systems is difficult for you to choose better

  • We will know which tax system will be better for you

The Adil Shetty

Union Budget 2020 simplified taxation for taxpayers, but in some cases, it has become complicated. Finance Minister Nirmala Sitharaman has confused taxpayers by proposing a new ‘simplified’ tax regime. This new tax regime has reduced tax rates for individual taxpayers, but there is a condition that they will have to waive tax deduction and exemption to avail of this reduced tax rate.
On the other hand, higher slab rates if you wish, but can keep the old tax system with tax deduction benefits running. We have mentioned a few things here, which will help you in deciding which of the two tax systems you should choose.
Read: Finance Minister gave a big blow to taxpayers, now your PF will also be taxed. To simplify taxation

versus old tax system

, a new tax system has been proposed in this year’s budget, in which you can make your deduction. Except for low tax rates. This move, which is optional, is expected to bring more power to the shopping in the hands of the common man. In short, let us see how the tax rate will change in the new tax system.
Under this new system, a tax rate of 10% will be applicable to people making an income of Rs 5 to 7.5 lakh instead of 20%. Similarly, the tax rate of 15% will be applicable to people making an income of 7.5 to 10 lakh rupees instead of 20%. Those earning Rs 10 to 12.5 lakh will be charged 20% instead of 30% and income of Rs 12.5 to 15 lakh will be taxed at 25% instead of 30%. People earning more than Rs 15 lakh will have to pay tax at the rate of 30%.
While announcing the new tax regime, Sitharaman said that the new simplified system would remove over 70 of the existing 100 exemptions and deductions. Eventually, the government wants to get rid of all the existing exempt facilities.
Read: If you choose a new income tax option, what could be the big loss
?
You must first understand how this mathematics works. As a taxpayer after the budget-related proposal, you will get a chance to choose either the new tax system or the old tax system. As of now, as a taxpayer, you will have to buy some investment and insurance products to reduce your tax burden and claim for tax deduction. You have to buy them based on your income and financial goals. If you have been investing in tax saving products till now to meet your taxation and financial goals, then the old tax system is beneficial for you.
The new tax regime is only for those who do not want to claim deduction and want more money in their hands. Therefore, you have to first find out whether you are benefiting from choosing a new arrangement or whether you want to keep your investment running to claim for deduction and rebate.
Read: If you are bothered by two income tax options, then this calculator
ask yourself these questions before taking any step

1. What is the purpose of investment?

Since the new system would have to waive deductions and exemptions for which you had claimed with the help of tax saving instruments, now you have to see if you want to invest money in other types of investments that are not taxed. , Such as mutual funds other than ELSS. This will give you the freedom to think beyond tax saving investment instruments and create wealth with the help of better returns. Therefore, first try to understand the purpose of your investment.

2. How much is your income?

Before choosing any option, it is important to first consider how much your income is. If your income is Rs 10 lakh or less, then investing in tax saving instruments can increase your financial burden. In such a situation, you can choose an investment product as per your convenience to reduce the tax rate to save more money.

3. Will you still be insured?

Despite being an important life investment, insurance has been seen as a tax saving instrument. Insurance is a powerful financial tool to protect the financial interests of you and your family. If you have bought an insurance product to save tax, ask yourself if you would like to turn your back on this important financial aspect. A life insurance policy gives financial protection to your family in the event of your unfortunate death, while a health insurance plan will help you cope with the rising healthcare costs during a medical emergency. If the new arrangement is beneficial for you, you should still buy adequate insurance.

4. What deduction and exemption do you claim?

Maybe you fall in the higher income bracket. With the help of the home loan you have taken or the health insurance premium you pay, you can get the benefit of higher deduction, which can reduce your tax liability. Therefore, find out whether you will be able to reduce your tax liability under the new tax system in the same way as you used to in the old tax system.
Lastly…
if there is still any doubt then it is better to seek the help of a financial advisor to understand which system is best for you. Take the right steps wisely to secure your financial future without compromising your financial goals.

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