New Tax Regime

Six tax bands are available under the new tax system, with rates cut on income up to Rs. 15 lakh. Multiple exemptions and deductions are not available here because of the different tax rates and income slabs.

Pros of New Tax Regime:

• The current tax system is still in effect, and as a taxpayer, you have the option of selecting the one that is most advantageous to you, i.e., the old tax system or the new tax system. The new tax system is not mandatory, according to the government.
• The new tax system gives the taxpayer the freedom to invest their money anyway they see fit. With the new plan, there is no longer a compulsion for participants to participate in insurance and tax-saving plans that may not be in line with their financial objectives.
• Because there are many tax brackets, you, the taxpayer, will fall into the bracket that best matches your yearly income.

Cons of New Tax Regime:

• The current exemptions will be evaluated gradually and slowly eliminated from the new tax system.
• The total taxable amount will be larger than it was under the previous tax system if there are no exemptions.
• Despite the six tax brackets, it might not be advantageous for all taxpayers if the income-tax authorities decide to entirely abolish the previous system.

Depending on their level of income, individual taxpayers in India are subject to an income tax. An individual is subject to a slab system of taxation if their income exceeds the minimum threshold limit (i.e. basic exemption limit). Under a slab system, separate tax rates are established for various income groups. It implies that a taxpayer’s tax rate will increase as his or her income does. The government can establish progressive and equitable taxes with the help of this kind of taxation. The way taxes were collected changed beginning with the 2020–21 fiscal year. A new tax system was introduced, and both the tax rates and the amount that might be saved in taxes were drastically lowered. Finance Minister Nirmala Sitharaman has suggested a new tax system that will create seven income tax bands and lower tax rates on income up to Rs 15 lakh, bringing about a radical change in direct tax rates.

All companies are required under a CBDT circular released on April 13, 2020, to ask employees if they want to choose the new tax regime. At the time of submitting the return, employees would still have the option of choosing between the tax regimes. People who choose the new system must sacrifice some exemptions and deductions that were available under the old system.