Employees must inform their company which tax regime they want to continue in the new financial year. Choosing the tax system that suits you best for TDS is better. Otherwise, there is a risk of loss. Which is better, the new tax system or the old tax system? Let’s know some things to know.
As the new financial year starts, the filing of income tax returns also begins. Taxpayers should ensure the tax burden stays on them in the current year. People start thinking about income tax exemptions in April, but with two types of tax systems available, it is important to choose between them. For the financial year 2024-25, the management of the working company should decide which tax regime to continue with. TDS will be deducted depending on the choice made by the employee. However, before choosing a tax policy, there are a few things to consider.
According to the Income Tax Act, the new tax regime is the default option. If the employee does not indicate which tax system they want to be in, the new tax system will come into effect, and the company will deduct TDS from the salary. If employees wish to exemptions, the company must disclose the same. For that, tax-saving investments should be chosen. TDS deductions can be reduced if these investments are started in the first quarter of the financial year itself. It should be noted that no tax deductions are applicable under the new tax regime.
The new tax system will have no tax up to Rs.3 lakh. Also, a standard deduction of up to Rs.50,000 applies to income received through salary. If the taxable income is less than Rs.7 lakh, then the employees do not need to pay any tax.
The old tax system did not tax income up to Rs.2.5 lakh. A standard deduction of Rs.50,000 applies to income from wages. Exemptions up to Rs.1.5 lakh can be availed through Section 80C. Also, exemptions can be availed through Section 80D Health Insurance, Section 80CCD National Pension System, etc. No tax must be paid if the taxable income does not exceed Rs.5 lakhs.
Wage earners should calculate their income in advance while choosing between the new and old tax regimes. They should know how much income they will receive in this financial year and calculate the taxable income. After that, based on the tax slabs, the amount of tax applicable under each system should be calculated. The decision on the tax policy should be taken based on this calculation. If you need to learn about income tax, you can use online tax calculators.
Moreover, even if you don’t choose a tax regime, you can choose the tax regime of your choice when filing IT returns.
