New Tax Regime: 9 out of 10 taxpayers are now opting for the new tax regime; here are 5 key reasons..

New Tax Regime: This time around, the majority of people filing Income Tax Returns (ITR) are opting for the New Tax Regime. Tax experts report that between 80% and 95% of the taxpayers they assist have chosen the new system this year. This figure has been steadily rising over the past few years. What is the reason behind this? Let’s find out.

1. Greater tax relief

Under the New Tax Regime, the government has increased the tax rebate available under Section 87A. Changes have also been made to tax slabs, and the benefit of the standard deduction has been enhanced. Consequently, many salaried individuals are seeing a reduction in their tax liability compared to the past.

ClearTax notes that lower tax rates, higher tax rebates, and an increased standard deduction are making the New Tax Regime more attractive.

2. Minimal paperwork

The Old Tax Regime requires taxpayers to maintain various documents to claim deductions such as HRA, 80C, 80D, and others. The New Tax Regime significantly reduces the need for such documentation, making the process of filing an ITR much easier.

Himank Singla, a partner at SBHS & Associates, states that people no longer wish to invest solely for the purpose of saving tax. Attracted by the simplified process, they are increasingly shifting towards the New Tax Regime.

3. Benefit of lower tax rates

For individuals who do not have significant deductions to claim, the New Tax Regime offers a direct opportunity to save on taxes. This is why the number of people opting for it is increasing every year.

According to CA Harshit Aggarwal, a partner at HJ Aggarwal & Co., approximately 95% of his firm's clients chose the New Tax Regime this year. Last year, this figure was slightly above 70%, whereas two years ago, only 20% of people were opting for it.

4. Easier ITR filing

The New Tax Regime involves fewer calculations and requires less documentation, allowing for a quicker return filing process. Sudhir Kaushik, Co-founder and CEO of TaxSpanner, states that many taxpayers earning up to ₹12 lakh are opting for the new tax regime simply because it requires less documentation and the overall process is simpler.

5. Still, not the right choice for everyone

While the new tax regime may have become the preferred choice for most people, it is not necessarily the better option for every taxpayer. Gopal Bohra, a partner at NA Shah Associates, notes that the old tax regime can still be more beneficial for individuals who avail of deductions such as HRA, home loan interest, Chapter VI-A deductions, or other significant tax benefits.

Similarly, Mihir Tanna, Associate Director at S.K. Patodia LLP, advises taxpayers to calculate their tax liability under both regimes before filing their returns. If you have deductions related to HRA, home loans, NPS, PPF, EPF, or other major categories, the old tax regime could still prove to be the better option.

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