Old vs New Tax System: A Bird Eye View
By Dr. Ankit Goel
We are all well aware that no matter how much money individuals or businesses make in a given year, they must pay tax to the government. Every year in February, when the government releases its budget, our finance minister announces if there have been any changes in the current prevailing tax system from the previous year. Before 2020, the government envisioned a tax system that would apply to everyone and there was no choice in front of anyone to have any other option other than that. However, our finance minister suggested a new tax structure in Budget 2020 which will applicable from financial year 2020-21 while leaving the old system in place. Additionally, each individual has the option of paying tax under the new system beginning April 1, 2021, or continuing to pay tax under the previous system, which we now refer to as the old tax system.
What is New Tax System
The government has reduced tax rates in the new tax system to much extent compared to the old tax system where the rates at upper slab were high, but there is an important aspect which one should always remember that if one will choose to adopts the new tax system instead of old tax system, deductions and exemptions that were available in the old system to all individuals will not be available in the new system, and tax will have to be paid on all income earned whether money is invested in various schemes..
Which Tax System to Adopt – Old vs New
Now the question is: which tax system, old or new, should an individual taxpayer choose to dispose the tax liability? For this, the solution is simple: each individual must evaluate his or her role by comparing both tax systems, and the system in which one pays less tax is advantageous and should be adopted by the individuals.
Every year, before filing and submitting an income tax return, one has the option of choosing between the old and new tax systems. Overall, it can be concluded that people who pay rent, pay life and health insurance premiums, and invest in different particular schemes that qualify for deductions under Section 80 should favor the previous tax system whereas those who do not believe in savings under those areas which are having advantage of exemptions and deductions can adopt the new tax system. One more important aspect is that few deductions are still available in the new tax system. Each individual should do some homework regarding these aspects before filing the return to get maximum benefit.
