The majority of India's salaried class chose the old tax regime when filing their returns in fiscal year 2024, preferring long-term investments over the instant liquidity provided by the new tax regime. According to a Policybazaar.com poll, 63% prefer the previous tax regime, while 37% prefer the new regime in fiscal year 2023-24.
Individual taxpayers are subject to two tax regimes. The former tax system had various tax slabs with varying rates based on income, and deductions under sections like 80C and 80D substantially reduced taxable income.
In comparison to the old regime, the new tax system, which became the default option in the fiscal year 2023-24, offers a simpler structure with fewer tax bands and lower rates. However, it eliminates the majority of deductions, offering only the standard deduction of Rs. 50,000 beginning in FY24.
Earlier this month, Business Standard estimated that over 55 million taxpayers may have shifted to the new tax regime in the current fiscal year, as the new income tax system has become more enticing for the fiscal year 2023-24, with a rebate on income up to Rs 7 lakh. When asked why they preferred the earlier tax regime, 43% of taxpayers mentioned lesser tax liability as the key reason. Other considerations affecting their selection included tax-free investing maturity, the discipline of long-term investments to avoid overspending, the benefits of government small savings schemes, retirement savings, and recommendations from friends or relatives. Eighty percent of those polled were aware of the tax system they had chosen for the current fiscal year. 71% had made their decision after calculating their tax responsibilities under both regimes, while 14% were generally aware of their liability under both regimes.
Notably, 20% of respondents were unaware of their tax regime, and 15% of those who were aware did not calculate their tax-laibility regime under the system. According to the poll, 74% of women analyze their tax due under both systems before choosing one. This is slightly higher than the 71% of men who calculate their tax due and choose a tax system.
Salaried people are more likely to Favor the old tax Scheme
According to the survey, salaried individuals were the most likely to choose the old tax regime, with over 67% choosing it in FY24. Among the alternative selections, more than 51% of businesspeople preferred the previous regime, while 53% of professionals chose the old regime. In FY24, 66% of retirees selected the former regime.
The survey indicated that high earners preferred the former regime across all income levels. Over 68% of salaried individuals earning more than Rs 7.5 lakh per annually (LPA) chose the previous system, while 54% of those earning less than Rs 7.5 lakh per annum chose the old regime.
Across generations, the Old Tax Regime is Preferred
In terms of age, 62% of respondents aged 21-30 chose the old tax regime, citing long-term investments as the rationale. The age group 31-41 years had the most takers of the old regime at 68%, followed by the 41-50 year age group at 66%.
"The high preference among the 31-40 year age group can be attributed to better financial stability at this age, as well as investing in long-term avenues to better plan for the future." This is in contrast to the 51-60-year-old age group, which has the least preference for the former tax regime (53%)," according to the survey.
A Look at the Preferences by Region
Over 69% of Tier I respondents chose the former tax regime, indicating a strong preference for tax savings through long-term investments. Tier 2 and 3 respondents were not far behind, with 61% and 59%, respectively, intentionally choosing the old regime. While the old regime was the overwhelming choice across India, Southern India shown the most investment readiness, with 66% opting for the old system.
According to the survey, the East Indian region had the lowest amount of respondents (60%) considering their tax liability before the selection, while the North had the highest at 75%. Most Eastern states have lower per capita income as well. At the state level, Tamil Nadu, Karnataka, Rajasthan, Gujarat, Andhra/ Telangana, and Delhi NCR had the largest tendency to invest in tax-free instruments, as seen by a higher proportion of respondents choosing the previous tax system.
Optional Investment
According to the poll, the most popular tax-saving vehicles were the Public Provident Fund (PPF) and life insurance (including ULIP and standard plans), which were picked by 39% and 34% of respondents, respectively.
