While filing income tax, taxpayers always have two options – the old tax system and the new tax system. Both have their advantages and disadvantages. If you are also going to file taxes this time, then there will be a dilemma that which tax system will be right for you? According to the Income Tax Department, currently employed taxpayers have the exemption that they can go from the new tax system to the old tax system or vice versa, from one financial year to another. So, let’s understand which system is better for whom.
Old tax system
Under the old tax system, taxpayers got the benefit of many tax-saving options like Section 80C, Leave Travel Allowance (LTA), and House Rent Allowance (HRA). You can take advantage of Section 80C by investing in various tax-saving schemes. Under this section, your income up to ₹ 1.5 lakh is not taxed.
If you have invested in a scheme that gives you the benefit of Section 80C or you are able to reduce tax through any allowance, then the old tax system can prove to be a better option for you. This is especially beneficial for those who have been investing for a long time and who have taken a home loan as they also get tax exemption on the interest.
New Tax System
According to the Union Budget 2025, in the new tax system, taxpayers get income tax exemption on income up to ₹ 12.5 lakh. This means that you will not have to pay any tax on income up to ₹ 12 lakh. If you are not getting the benefit of Section 80C or you have not invested in any tax-saving scheme, then the new tax system can also prove to be a good option for you. It may be more attractive for young people and newly employed people who have not started investing yet or whose income is less than ₹ 12 lakh.
Tax Calculation
You can also calculate your potential tax liability in both of these tax systems to decide which one is better for you. Tax calculation will help you choose the right option. You do not even need to calculate it yourself. You can easily calculate tax by visiting the Income Tax Department website. You will get comparative information on your tax liability under both systems on the website, which will make it easier for you to make the right choice.