Taxpayers getting ready for the year 2025 have an important choice to make about how they pay their taxes. You can change between the old way of paying taxes and the new way. Here’s what you need to know:
Before:
Before the year 2020, there was only one way to pay taxes, with four different rates depending on how much you earned.
Now:
In 2020, a new way of paying taxes was introduced.
Default Option
In the year 2023, the government decided that everyone should use the new tax system unless they choose otherwise. But you still have the freedom to pick which way you want to pay your taxes.
For Salaried People
If you get a salary, you can switch between the old and new tax systems as many times as you want. The old system lets you take off more money before paying taxes, like for things such as savings and health expenses. The new system doesn’t let you take off as much.
For Business Owners
If you own a business, you can only pick one time which tax system you want to use. Once you choose to switch from the old to the new system, you can’t go back.
Filing Taxes
When you fill out your tax forms, you can choose which system you want to use. The forms have made it easier to do this.
Comparing Old and New
The old way of paying taxes lets you take off more money, like for rent and health expenses. The new way doesn’t let you do that, but it has different rates for how much you earn.
Tax Rates
Under the old way, you paid different rates based on how much you earned, ranging from 0% to 30%. Under the new way, the rates are different.
- For income up to Rs 3 lakh, there is no tax.
- For income of more than Rs 3 lakh up to Rs 6 lakh, it is 5%.
- Over Rs 6 lakh up to Rs 9 lakh, it is 10%.
- Over Rs 9 lakh to Rs 12 lakh, it is 15%
- From Rs.12 lakh to Rs.15 lakh, it is 20%.
- Above Rs 15 lakh, it is 30%
Old Tax Regime
Income tax slabs (Rs) Income tax rates (%)
- From 0 to 2,50,000, it is 0%
- From 2,50,001 to 5,00,000 , it is 5%
- From 5,00,001 to 10,00,000, it is 20%
- From 10,00,001 and above, it is 30%
Understanding how these two systems work can help you make the best choice for your finances.
Sources:
- Business Today
- Union Budget proceedings for the fiscal year 2023-24, Finance Minister Nirmala Sitharaman.