The Indian income tax system levies a tax on individual taxpayers depending
on their income level. However, from 2020-21, the method of levying taxes
changed.
A new tax regime was announced wherein the tax rates were reduced
significantly, along with a massive reduction in tax-saving opportunities.
The government has incorporated many incentives in the 2023 Budget to
support implementing the new system.
If you often wonder new regime vs old regime, which one is better? Let’s
read on to find out more here, as the case may differ for different income
slabs.
In the blog, we will first learn about the difference between the tax rates
of both regimes, the difference in the deductions available, and practical
examples of how the new regime will make a difference for each tax slab.
New Tax Regime
Beginning April 1, 2020 (FY 2020-21), the Government of India implemented a
new optional tax rate system for individuals and Hindu undivided families
(HUF).
Consequently, Section 115 BAC was added to the Income Tax Act of 1961 (the
Act), which mandated lower tax rates for respective taxpayers and HUFs who
did not take certain tax deductions or exemptions.
Based on the revisions suggested in the Union Budget 2023, the new tax
regime has been designated as the default, and taxpayers must choose the
old tax regime if they decide to use it.
However, those who choose the new system cannot claim various exemptions
and deductions, including HRA, LTA, 80C, 80D, etc. As a result, the new tax
structure found few supporters. Therefore, the government announced five
significant adjustments in Budget 2023 to persuade taxpayers to accept the
new system. They are as follows:
Increased Tax Rebate Limit
A total tax rebate of up to 7 lakhs has been introduced. Under the previous
tax regime, this threshold was set at five lakhs. This implies that people
earning up to Rs 7 lakh would not have to pay any tax under the new regime!
Simplified Tax Slabs
The tax exemption limit has been raised to 3 lakhs, and the new tax slabs
are as follows. Here are the new vs old tax regime slab-
Annual Income Income Tax Slab Old Regime
Up to Rs. 3 lakhs Nil
Rs.3 – 6 lakh 5%
Rs.6 – 9 lakh 20%
Rs. 9-12 lakh 30%
The following table illustrates the changes in New Tax Regime slabs with
respect to changes announced in Union Budget 2024-
Tax Slab for FY 2023-24 Tax Rate Tax Slab for FY 2024-25 Tax Rate
Upto Rs 3 lakh Nil Upto Rs 3 lakh
Nil
Rs 3 lakh - Rs 6 lakh 5% Rs 3 lakh - Rs 7 lakh 5%
Rs 6 lakh - Rs 9 lakh 10% Rs 7 lakh - Rs 10 lakh 10%
Rs 9 lakh - Rs 12 lakh 15% Rs 10 lakh - Rs 12 lakh 15%
Rs 12 lakh - Rs 15 lakh 20% Rs 12 lakh - Rs 15 lakh 20%
More than 15 lakh 30% More than 15 lakh 30%
Standard Deduction and Family Pension Deduction
The 75,000 standard deduction, previously accessible solely under the old
regime, has also been extended to the new tax scheme. Together with the
rebate, this amounts to 7.5 lakhs in tax-free income under the new regime.
Those receiving a family pension are eligible for a deduction of Rs15,000
or 1/3rd of the pension, whichever is lower. Surcharge for High-Net-Worth
Individuals Cut: The surcharge rate for income over five crores has been
cut from 37% to 25%. This change reduces their effective tax rate from
42.74% to 39%. The exemption limit for non-government workers has been
increased eightfold, from 3 lakhs to 25 lakhs.
Old Tax Regime
The tax system that existed before the implementation of the new regime is
the old tax regime. Approximately 70 exclusions and deductions are
available under this system, including HRA and LTA, that can reduce your
taxable income and minimise your tax payments.
Section 80C, the most prevalent and substantial deduction, allows for a
reduction in the taxable income of up to Rs.1.5 lakh. Additionally, the
taxpayers are offered the option of choosing between the existing and new
tax regimes.
List of a Few Exemptions and Deductions in Old Tax Regime Slabs
Here’s the list (not exhaustive) of exemptions-
Leave Travel Allowance
House rent allowance
Deductions available under Section 80TTA/80TTB (on interest from savings
account deposits )
Entertainment allowance deduction and professional tax (For government
employees)
Tax relief on interest paid on home loan for self-occupied or vacant
property u/s 24
Deduction of Rs 15000 permitted from family pension under clause (ii a) (
Section 57)
Tax-saving investment deductions under Chapter VI-A (80C,80D, 80E,80CCC,
80CCD, 80D, 80DD, 80DDB,, 80EE, 80EEA, 80EEB, 80G, 80GG, 80GGA, 80GGC,
80IA, 80-IAB, 80-IAC, 80-IB, 80-IBA, etc) (Except, deduction under Section
80CCD(2)—employers contribution to NPS, and Section 80JJA) and so on. These
popular tax-saving investment options include ELSS, NPS, PPF, and a tax
break on insurance premiums.
One can still claim a deduction under sub-section (2) of section 80CCD,
basically an employer’s contribution towards an employee’s account in NPS
and section 80JJAA ( for new employment).
Also note that if the employee’s contribution to EPF and NPS exceeds Rs 7.5
Lakh in the financial year in question, then the employee is liable to pay
tax.
List of Significant Exemptions Enclosed in the New Tax Regime
Income from Life Insurance
Agricultural Income
Standard reduction on rent
Retrenchment compensation
Leave encashment on retirement
VRS proceeds up to Rs 5 lakhs
Death cum retirement benefit
Money obtained as a scholarship for education, etc.
Difference Between Old Vs New Tax Regime: Which should a person choose?
New tax regime vs old, which is better, is a tough question to answer since
there's no one correct answer.
The choice of switching to the new tax regime or staying in the old tax
regime, or whether the regime is best for you, must be based on the tax
savings deductions and exemptions available in the previous tax system.
Old Vs New Regime Example
Suppose an individual has an income of Rs. 7,75,000. The following table
shows the tax calculation under the new and old regimes:
Particulars Old Tax Regime Proposed New Tax
Regime
Gross Salary 7,75,000 7,75,000
Interest deduction
on housing loan
(self-occupied) deduction
/HRA exemption-
-Standard Deduction- - 50,000 -75,000
Gross Total Income 7,25,000 7,00,000
Deduction under Section 80C -50,000 -
Deduction under Section 80D - -
Deduction under Section - -
80CCD(1B) - -
Total Taxable Income 6,75,000 7,00,000
Tax 47,500
20,000
Rebate -
-20,000
Surcharge-
1900 -
Total Tax 49,400
zero
-Total Deductions/Exemptions 1,00,000 75,000
Some Estimates: Old Regime vs New Regime
Here are some estimates to help you decide between the existing and new tax
regimes:
The new regime will be advantageous when total deductions are less than 1.5
lakhs.
When total deductions exceed 3.75 lakhs, the old regime will be beneficial.
When total deductions range from 1.5 lakhs to 3.75 lakhs: this is
determined by your income level.
Summing Up Old Tax Regime Vs New Tax Regime
People often wonder about the difference between the old and new tax
regime. The new income tax regime would cater to people who do not want
excessive deductions or do not wish to avoid tax preparation burdens. This
may include non salaried taxpayers (including consultants) who are
ineligible for Section VIA exemptions and deductions.
Both old vs new tax regimes have benefits as well as drawbacks. Before
deciding, understand the differences between the old and new tax regimes.
The previous tax structure instils in a taxpayer the habit of saving. The
new tax structure benefits employees who earn less and invest less,
resulting in fewer deductions and exemptions.
The new tax system is safer and more straightforward, with fewer records
and less potential for tax evasion fraud. However, because everyone has
their unique set of deductions and exemptions, the two regimes must be
compared to find the best for everyone.
KR: This budget gets a leverage to new tax regime where 12.75 lakhs may
not get any tax or no tax need to be paid.
K Rajaram IRS 2225
---------- Forwarded message ---------
From: Rangarajan T.N.C. <[email protected]>
Date: Sun, 2 Feb 2025 at 07:51
Subject: I wonder whether the new slabs are linked the salary slabs of govt
servants
To:
Tax Calculator <https://tax.pythontrader.in/>
Tax Calculator
<https://tax.pythontrader.in/>
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