ITR filing: Should high-income earners choose the new tax regime?

Taxpayers often get confused when filing their income tax returns (ITR), especially when choosing between the old and new tax regimes. Although selecting the correct regime can be complex, they need to consider several parameters before submitting their ITR.

If you decide to opt for the new tax regime under Section 115BAC, you should look at your income profile, available deductions and exemptions, and overall financial planning goals. The new regime, which offers lower slab rates but removes most deductions and exemptions, may be beneficial for certain categories of taxpayers.

According to CA Suresh Surana, individuals who do not claim significant deductions, such as those under Sections 80C (e.g., LIC premiums, PPF, ELSS), 80D (health insurance), HRA, LTA, or interest on housing loans, may find the new regime more advantageous due to its simplified structure and concessional tax rates. “This is particularly relevant for young professionals, freelancers, or salaried individuals who do not have housing loan commitments or rental expenses,” he said.

Surana also said that high-income earners may benefit from the new regime, as the surcharge on income exceeding ₹5 crore is capped at 25%, compared to 37% under the old regime, resulting in a substantially lower effective tax rate for such taxpayers. “Senior citizens with limited income sources, such as a pension and bank interest, who do not take advantage of multiple deductions, may also consider the new regime for its simplicity and efficiency,” he added.

Who should opt for the old tax regime?

Conversely, the old regime remains more beneficial for taxpayers who avail themselves of substantial deductions and exemptions. Individuals with investments in tax-saving instruments under Section 80C, housing loan interest under Section 24(b), health insurance premiums under Section 80D, contributions to the National Pension System (NPS) under Section 80CCD(1B), etc., often experience a lower overall tax liability under the old regime, despite the higher slab rates.

One should never forget that they should decide between the old and new tax regimes after a comparative analysis of actual income and eligible deductions for the relevant financial year.