 "ITR filing")
The majority of India's salaried class opted for the old tax regime while filing their returns in fiscal year 2024 to prioritise long-term investments over instant liquidity offered by the new tax regime. A survey by Policybazaar.com found that 63 per cent opted for the old tax regime, while 37 per cent chose the new regime in the financial year 2023-24.
There are two tax regimes for individual taxpayers. The old tax regime features multiple tax slabs with varying rates based on income, allowing for deductions under sections like 80C and 80D, effectively reducing taxable income.
The new tax regime, which became the default choice in the financial year 2023-24, offers a simpler structure with fewer tax slabs and lower rates compared to the old regime. However, it eliminates most deductions, offering only the standard deduction of Rs. 50,000 from FY24 onwards.
Earlier in August, Business Standard had reported that around 55 million taxpayers may have switched to the new tax regime in the current fiscal year, as the new income tax system has become more appealing for the financial year 2023–24 with a rebate on income up to Rs 7 lakh.
When asked about the reason for the choice of the old tax regime, 43 per cent of taxpayers cited lower tax liability as the primary reason. Other factors influencing their decision included tax-free maturity on investments, the discipline of long-term investments to prevent overspending, the benefits of government small saving schemes, retirement savings, and recommendations from friends or family.
When asked about the reason for the choice of the old tax regime, 43 per cent of taxpayers cited lower tax liability as the primary reason. Other factors influencing their decision included tax-free maturity on investments, the discipline of long-term investments to prevent overspending, the benefits of government small saving schemes, retirement savings, and recommendations from friends or family.
More From This Section
]Out of the surveyed respondents, 80 per cent were aware of the tax regime they had selected in the current financial year. Of those 71 per cent had made the selection after calculating their tax liabilities under both regimes while 14 per cent were broadly aware of their liability under both regimes.
Notably, 20 per cent of respondents were not aware of their tax regime and among those aware 15 per cent did not calculate their tax-laibility regime under the scheme.
According to the survey, 74 per cent of women calculate their tax liability under both regimes before opting for either one. This slightly exceeds 71 per cent of men calculating their tax liability tax regime selection.
Salaried individuals most inclined towards old tax regime
According to the survey, salaried individuals were most inclined to opt for the old tax regime, with over 67 per cent selecting it in FY24. Among other options, more than 51 per cent of businesspersons opted for the old regime, while 53 per cent of professionals chose the old regime. Among retirees, 66 per cent chose the old regime in FY24.
Across income brackets, the survey found that high earners preferred the old regime. Over 68 per cent of salaried individuals earning more than Rs 7.5 lakh per annum (LPA) opted for the old regime, while 54 per cent of those earning up to Rs 7.5 lakh per annum opted for the old regime.
Old tax regime preferred across age
Age-wise, 62 per cent of respondents in the 21-30 age bracket opted for the old tax regime, citing long-term investments as the reason. The highest takers of the old regime were in the age group of 31-41 years at 68 per cent, followed by the 41-50 year age group at 66 per cent.
“The high preference among the 31-40 year age group can be linked to better financial stability at this age and investing in long-term avenues to plan better for the future. This is in contrast to the 51-60-year age group showing the least inclination towards the old tax regime (53 per cent),” said the report.
A look at the region-wise preferences
Over 69 per cent of Tier-I respondents opted for the old tax regime, a display of a maximum propensity to save tax through long-term investments. Tier 2 and 3 respondents were also not very far behind, with 61 per cent and 59 per cent, respectively, consciously opting for the old regime.
While across India, the old regime was the clear choice, Southern India showed the highest investment readiness with 65 per cent takers for the old tax regime.
Notably, the East Indian region had the lowest number of respondents (60 per cent) calculating their tax liability before the selection in contrast to the highest in the North at 75 per cent, according to the report. Most Eastern states also have lower per capita income. At the state level, the propensity to invest in tax-free instruments was highest among Tamil Nadu, Karnataka, Rajasthan, Gujarat, Andhra/ Telangana and Delhi NCR as indicated by a higher proportion of respondents choosing the old tax regime.
Investment choice
The survey found that the Public Provident Fund (PPF) and life insurance (including ULIP and traditional policies) were the most favoured tax-saving instruments, chosen by 39 per cent and 34 per cent of respondents, respectively.
"It is evident from our survey that the Indian consumer has a deep-rooted, savings-centric mentality and approaches financial planning with mindfulness. Taxpayers are now considering both immediate tax benefits and long-term gains from retirement-linked instruments like provident funds, pensions, and insurance,” said Sarbvir Singh, President and Joint-Group CEO at PB Fintech, the platform that operates Policybazaar.com.
