The six tax slabs in the new tax system have tax rates of 0%, 5%, 10%, 15%, 20%, and 30%. Each of these equates to a lower income rate of up to 15 lakhs per year. Income up to 7 lakhs per year is exempt from the increased tax rate. The advantages and exemptions provided by the previous tax system, which benefited taxpayers, are not valid under the current system.
In some circumstances, the new tax system is preferable to the previous one since it permits unrestricted investments from income that are tax-free. Additionally, income under Rs. 7 lakhs is not subject to tax.
Since there are no exemptions under the new tax system, the taxable income can go up, which is its major drawback. The basic deduction of Rs 50,000—which was already offered under the previous tax system—is the only benefit that is permitted under the new one.
Four tax slabs, ranging from 0% to 30%, were part of the previous tax system. 5 lakhs per year was set as the zero-deduction level. This is what most distinguishes the previous tax system from the new tax system. Due to the additional parts of the Income Tax Act, the old tax system offers a number of deductions that give taxpayers many advantages to ensure reduced taxes.
The previous tax system allowed you to plan your taxes based on your savings, giving you a strategy that is future-proof. Investments made under Section 80C qualified for up to 1.5 lakhs in tax deductions. Through this approach, consumers were urged to save money for their tax preparation.
Both the previous and the new tax regimes have their drawbacks. For the previous system, the investments necessary to lower taxes reduce available cash. In addition to investments made for tax purposes, many families also have committed investments like mortgages, wedding or student loans. Furthermore, even after making investments that are tax deductible, getting the deduction can be difficult.
