- Date : 17/01/2024
- Read: 3 mins
A look at the taxpayer’s preference among the old tax regime and the new, and an examination of the reasons for this preference.
The 2020-21 budget introduced the new tax regime. In the old vs new tax regime comparison, the government vouched for it to be a simpler and easier way of filing tax returns. From financial year 2023-24, the new tax regime even replaced the old tax regime as the default regime.
Somehow, it seems that taxpayers are still not convinced. In the case of “Why mend if it is not broken”, most of them continue to opt for the old regime.
The new regime is beneficial for deductions below Rs 1.5 lakhs, and the old regime is better if deductions are above Rs 3.75 lakhs. For deductions in between, the income levels matter.
Office perks, interest on home loans if the property is let out, employer’s contribution to NPS are some of the allowed deductions in the new regime.
The income tax rebate is Rs 7 lakh in the new regime, but only Rs 5 lakh in the old regime.
The Old vs New Tax Regime Conundrum
A Policybazaar Survey titled “India’s Investment Readiness” was carried out among taxpayers across 350 cities. Some of the key findings of the Policybazaar survey are:
63% of respondents prefer the old regime while 37% have gone for the new regime
74% of women, and 71% of men as well as overall, base their decision on calculating their tax liability under both regimes
62% of respondents in the 18-30 age group opted for the old regime
69% of Tier-I respondents have chosen the old regime, more than Tier-II and III cities
South India has the highest preference for the old regime at 65%
For 39% of the respondents, PPF is the most favoured tax-saving instrument. Life insurance policies including ULIP and traditional plans is second at 34% \
Summarising the Findings
The key difference in the old vs new tax regime comparison is the presence of tax-friendly investments in the old regime. Taxpayers have planned their investments keeping the tax and financial planning aspect in mind. Many of these investments are long-term investments. Besides, the home loan deductions are also an added attraction in the old regime.
The new regime is a welcome step that simplifies the tax filing exercise for taxpayers. However, Indians continue to have a preference for long-term debt investments like PPF, ELSS, NPS, Tax Saver FD, etc. This automatically gives rise to opportunities for tax deductions.
Unless there is a shift in the investor mindset towards short-term and alternate investments in the coming years, the old regime may continue to be popular among Indian taxpayers.
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Disclaimer: This article is intended for general information purposes only and should not be construed as investment or tax or legal advice. You should separately obtain independent advice when making decisions in these areas.