Invest Smart 2024: Understand old & new tax regimes for better tax planning

We are approaching the end of the financial year and we are also counting down to the interim budget on February 1, two events that have a lot of us focussed on tax planning. To discuss this in detail, Avni Raja caught up with Aarti Raote, Partner, Deloitte India.

Old Tax Regime vs New Tax Regime

Raote began by addressing the fundamental choice between the old and new tax regimes. She said that for salaried individuals, there's a lot of flexibility to switch between the two regimes, allowing changes on multiple occassions. However, non-salaried individuals must make a one-time, well-informed decision as switching in and out is not an option. For the non-salaried class, Raote emphasised the need for a long-term view, considering factors like home loans, investments, and education plans.

Switching Tax Regimes: Keep this in Mind

When questioned about switching from the new to the old tax regime in a given financial year, Raote said employees must meticulously document and submit supporting documents for missed deductions during the year. She encouraged individuals to make a conscious decision at the beginning of the financial year to avoid the cumbersome processes during tax filing.

New Tax Regime & Allowances

The discussion also extended to allowances and reimbursements under the new tax regime. Raote clarified that employees can still enjoy benefits like fuel conveyance, phone bill reimbursements, and more, depending on their employer's offerings. She added the choice of exemptions and benefits is often tied to the employer's compensation structure.

Expectations from FM Nirmala Sitharaman

Talking about the expectations from Finance Minister Nirmala Sitharaman in the upcoming interim budget, Raote said she expects the FM to enhance the ease of compliance and address operational issues within the tax system. While major announcements may be reserved for post-election budgets, small-scale improvements could streamline tax processes and offer relief to taxpayers.

Old Tax Regime: The Road Ahead

Looking ahead, Raote envisions the phasing out of the old tax regime, making the new regime the default option. She noted that the attractiveness of the new tax regime, especially for higher income brackets, has led to a significant shift in taxpayer preferences.

In conclusion, Raote outlined the available tax savings under the new tax regime, emphasizing deductions for car benefits, fuel reimbursements, telephone reimbursements, transport allowances for differently-abled individuals, and deductions for the employer's contribution to the new pension scheme.

As taxpayers navigate the intricate landscape of tax planning, Raote's insights shed light on critical considerations, providing viewers with valuable guidance for the financial year.