Your guide to decoding the nitty-gritties of old and new tax regimes

This apart, you can also avail of tax benefits related to perquisites like meal coupons, laptop and mobile expenses, gifts up to Rs 5,000, car lease and petrol, driver salary, etc. Then, there are exemptions on house rent allowance (HRA) and leave travel allowance (LTA) that form part of your cost-to-company (CTC). These tax saving options can help you net big tax savings if the salary structure provided by the employer is tax efficient and flexible and the employee is ready to change his/her money beliefs and habits too.

Basically, these are ways to lower your taxable income - the amount of money you have to pay taxes on. So, the old regime encourages you to save and invest your money smartly. This helps prevent overspending, as it is often tempting to loosen your purse strings when you have instant access to your cash.

On the other hand, the new tax regime is simpler and has fewer options to reduce tax outgo. This might lead some people to spend more than they should, which isn't great for long-term money management.

Also read: Tax-saving: Exemptions you can claim under the new and old tax regimes

The new tax regime has less paperwork

Now, let's talk about paperwork. The old tax regime can feel overwhelming at first because there's a lot of paperwork involved, and you need to save up some money to get certain tax benefits. But here's the thing: all that paperwork can actually help you save a bunch on taxes.

The new tax regime, on the other hand, keeps things simpler with less paperwork, but it doesn't give you as many options to save money on taxes. So, while the old regime might seem harder at first, it could end up saving you more money in the long run, especially if you earn a good amount of cash.

Also read: Old vs New tax regime: What to choose and how?

Old tax regime comes with the risk of mis-selling

But here's a concern: sometimes, people try to sell you investments just to help you save on taxes, without ascertaining whether the investments fit into your long-term financial plan or not. This is particularly true of the old tax regime. So, it's important to be careful and make sure any investments you make are actually good for you, not just for saving on taxes.

Default tax regime

Since new tax regime is the default regime FY 2023-24 onwards, your employer might automatically move you to the new tax regime, which means you won't get some deductions such as sections 80C and 80D, interest on self occupied house, etc.

In that case, it's important to file your income tax returns (ITRs) diligently to make sure you get all the benefits you are entitled to. In such cases, you can pick the old regime while filing the return by July 31, 2024 thus claiming refund of excess tax deducted by the employer.

Salaried taxpayers should bear in mind an important point at the time of filing their proposed investment declarations for the financial year  2024-25. They should select the old tax regime if they wish to continue utilising the tax deductions, perquisites and exemptions in FY 2024-25. Else, your taxes will be computed as per the new regime rates as it is the default system FY 2023-24 onwards.

At the end of the day, the choice between the old and the new regimes depends on your personal situation and what you want to achieve financially. Before you decide, make sure you crunch the numbers and see which one will save you more money.

While the new tax regime might seem simpler, the old tax regime still has a lot of benefits that will appeal to many professionals and regular taxpayers. Understanding the nitty-gritties of both regimes will help you make a confident choice about your taxes.