Earning Up To 6 Lakh Annually: Old vs New Tax Regime, Which Is Best To Maximize Tax Savings? Check Here

To determine the most beneficial tax regime, two primary factors come into play: income level and eligible deductions.
Income Tax, Old vs New Tax Regime, ITR, ITR Filing, Income Tax Declaration, Income Tax Filing

Earning Up to 6 Lakh Annually: Old vs New Tax Regime, Which Is Best to Maximize Tax Savings? Check Here (image source: Times Now Digital)

Income Tax: Since the introduction of the new tax regime in 2023, Taxpayers are compelled to choose between the old and new tax regimes, Moreover from this year 2024, the new tax regime will default in case of failure to submit their income tax declaration before March 31. The new tax regime seems appealing for individuals earning above Rs 6 lakh annually. However, determining which tax regime offers better benefits can be complex if you don't understand individual financial goals and tax planning.

Factors Influencing Tax Regime Choice

To determine the most beneficial tax regime, two primary factors come into play: income level and eligible deductions. Understanding how tax liability and potential savings fluctuate based on these factors is crucial.
'It always depend upon which range of income you belongs and what are your deductions amount so one should assess the tax liability after considering the unavoidable expenses and the unstoppable investments. Many tax payers would be paying some unavoidable expenditures and unstoppable investments which has the tax benefits,' said CA Divya Bhanushali, Chief Product Officer, TaxBuddy.com.

Tax Dynamics for Individuals Earning Rs 6 Lakh Annually

Under the new tax regime, individuals with an annual income of Rs 6 lakh enjoy nil tax liability. In contrast, under the old tax regime, salaried individuals may face a tax liability of Rs 22,500 (excluding cess) if they don't utilise any deductions except the standard deduction of Rs 50,000. However, many salaried taxpayers already incur zero taxes under the old regime by leveraging deductions. By utilizing deductions such as the Rs 50,000 standard deduction and Rs 50,000 under Section 80C, taxpayers can bring their taxable income to Rs 5 lakh, resulting in zero tax liability.
ParticularsOld Tax Regime With DeductionsNew Tax Regime
Annual IncomeRs 6,00,000Rs 6,00,000
Standard DeductionRs 50,000Rs 50,000
Section 80C (Deductions Upto 1.5 On Investments)Rs 1,50,000 (Maximum)0
Net Taxable IncomeRs 4,50,000Rs 5,50,000
Tax On Above IncomeRs 10,000 (up to Rs 2.5 lakh- BEL and beyond that 2 lakhs of 5 per cent)Rs 12,500 (up to Rs 2.5 lakh- BEL and beyond that 2 lakhs of 5 per cent)
Rebate under section 87ARs. 10,000 (Max Rs 12,500)Rs 12,500 (Max 25,000)
Final Tax AmountNilNil
Source: TaxBuddy.com
"If Individuals having income up to Rs. 7 lakhs and opting for New regime then no tax liability as eligible for Rebate under section 87A up to Rs. 25000.' said CA Divya Bhanushali.

Considering Deduction Levels

For individuals earning above Rs 6 lakh annually, assessing available deductions is crucial. Deductions such as those under Section 80C (up to Rs 1.5 lakh) and others like HRA, interest on home loan, and medical insurance premiums significantly impact tax liability. Evaluating which deductions are applicable and how they influence tax savings is essential when choosing between tax regimes.

Impact of Rising Income Levels

As income levels exceed Rs 6 lakh, the tax-saving potential under both regimes fluctuates. While the new regime offers simplicity and lower tax rates, deductions play a vital role in optimizing tax savings. Individuals earning substantially above Rs 6 lakh annually should carefully analyze their deduction eligibility and compare tax liabilities under both regimes to make an informed decision.
(Disclaimer: The above article is meant for informational purposes only, and should not be considered as any investment advice. Times Now Digital suggests its readers/audience to consult their financial advisors before making any money-related decisions.)
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