Best Tax Regime for ₹12 Lakh Salary – Old vs. New Compared
Knowing the tax regime options one has is essential if one has a salary of ₹12 lakh. The latest reforms in Indian taxation laws have given this choice greater importance. In this blog, we shall understand the distinctions between the previous and current tax regimes and enable you to make the right decision.
Overview of Tax Regimes
India provides two main tax regimes: the old and the new. Both have their own rules, exemptions, and deductions. Knowing them can make a huge difference to your take-home pay.
The Old Tax Regime
The old tax regime permits several deductions and exemptions. These include:
- House Rent Allowance (HRA)
- Leave Travel Allowance (LTA)
- Deductions under Section 80C for investments in PPF, ELSS, etc.
These exemptions can reduce your taxable income to a great extent, particularly if you have big investments or rental expenses.
The New Tax Regime
Laid out to make tax payment easier, the new regime is less taxing but with fewer deductions. For instance:
- No tax on income of up to ₹12 lakh.
- A universal deduction of ₹75,000 for salaried taxpayers.
This regime is best suited for people who want an easy way out of taxation without the burden of keeping elaborate documentation.
Comparing Tax Liabilities
To see how much better one system is compared to the other for a ₹12 lakh income, let’s calculate tax liabilities under both systems.
- Tax Calculation Under the Old Regime
- Assuming you take all eligible deductions:
- Basic Exemption: ₹2.5 lakh
Tax Slabs:
- 5% on income between ₹2.5 lakh and ₹5 lakh
- 20% on income between ₹5 lakh and ₹10 lakh
- 30% on income above ₹10 lakh
If you optimize your deductions (assuming you claim about ₹3 lakh), your taxable income would be about ₹9 lakh.
Computing the tax:
Income: ₹9 lakh
Tax:
- 0% on first ₹2.5 lakh = ₹0
- 5% on next ₹2.5 lakh = ₹12,500
- 20% on next ₹4 lakh = ₹80,000
Total tax = ₹92,500
Tax Calculation Under the New Regime
Under the new regime, your taxable income is still ₹12 lakh because of no major deductions:
Basic Exemption: ₹2.5 lakh
Tax Slabs:
- 0% to ₹2.5 lakh = ₹0
- 5% between ₹2.5 lakh and ₹5 lakh = ₹12,500
- 10% between ₹5 lakh and ₹7.5 lakh = ₹25,000
- 15% between ₹7.5 lakh and ₹10 lakh = ₹37,500
- 20% between ₹10 lakh and ₹12 lakh = ₹40,000
Total tax = ₹115,000
Which Is Better?
For a ₹12 lakh salary, the old regime might initially appear to be better due to the potential tax savings through deductions. However, if you do not have significant deductions to claim, the new regime becomes more appealing as it offers greater simplicity and a higher standard deduction.
Important Things to Keep in Mind
Deductions:
In case you have large investments or expenses which are deductible, the old regime would be more advantageous.
Simplicity: The new regime is less complex and involves less paperwork.
Future Changes: Tax laws may change annually; one must remain updated.
Conclusion
The selection between the old and new tax regimes is heavily dependent on your personal financial condition. Moreover, it also depends on your preference between complexity and potential savings. For instance, if you earn approximately ₹12 lakh with few deductions, the new regime offers a simpler route while still maintaining competitive charges.
For personalized advice tailored to your financial situation by a Chartered Accountant in Delhi, visit SapTaxHub. Our experts can guide you through these choices effectively.
Understanding your options is crucial in optimizing your tax liabilities and ensuring that you keep more of your hard-earned money in your pocket. For Tax Audit Service in Delhi, visit SapTax Hub.
