The Indian tax system underwent a major overhaul with the introduction of the new tax regime. The new tax regime offers lower tax rates but limits the number of deductions and exemptions available to taxpayers. While the old tax regime continues to exist, taxpayers have the option to choose between the two regimes. We will discuss the differences between the old tax regime and the new tax regime, and which one is better based on your income level and tax-saving investments.
Old Tax Regime
The old tax regime is the traditional tax system that has been in place for many years. Under the old tax regime, taxpayers are allowed to claim various deductions and exemptions to reduce their taxable income. Some of the popular deductions and exemptions under the old tax regime include:
- Standard Deduction: A standard deduction of Rs. 50,000 is allowed for salaried individuals.
- People whose gross salary income is up to INR 5.5 lakh would have no tax liability.
- Rebate u/s 87A was ₹12,500
- Deduction under Section 80C: This deduction allows taxpayers to claim up to Rs. 1.5 lakh for investments in specified instruments such as Public Provident Fund (PPF), National Pension System (NPS), and Equity-Linked Savings Scheme (ELSS).
- Deduction under Section 80D: This deduction allows taxpayers to claim a deduction of up to Rs. 25,000 for medical insurance premiums paid for themselves, spouse, and dependent children. An additional deduction of up to Rs. 50,000 is allowed for senior citizens.
- Deduction under Section 80E: This deduction allows taxpayers to claim a deduction for the interest paid on education loans.
- Deduction under Section 80TTA: This deduction allows taxpayers to claim a deduction of up to Rs. 10,000 for interest earned on savings accounts.
- Deduction under Section 80G: This deduction allows taxpayers to claim a deduction for donations made to specified charitable institutions.
New Tax Regime
The new tax regime was introduced in the 2023 Union Budget with the aim of simplifying the tax system and offering lower tax rates to taxpayers. Under the new tax regime, taxpayers are not allowed to claim most deductions and exemptions available under the old tax regime. However, the tax rates under the new tax regime are lower than the old tax regime. The tax rates under the new tax regime are as follows:
- The income tax rebate limit has been increased from INR 5 lakh to INR 7 lakh per annum for resident individuals.
- The Standard deduction of INR 50,000 has also been included in the new tax regime as well.
- People whose gross salary income is up to INR 7.5 lakh would have no tax liability.
- Rebate u/s 87A would be ₹25,000
- Taxpayers who choose the new tax regime will not be allowed to claim deductions such as, deductions under Section 80C, deductions under Section 80D, deductions under Section 80E, deductions under Section 80TTA, and deductions under Section 80G.
- However, they will be allowed to claim deductions for contributions made to the National Pension System (NPS) and the Atal Pension Yojana (APY).
Which Tax Regime is Better?
|Annual Income||Income tax old slab regime||Income Tax new slab regime (AY 23-24)|
|Upto Rs.2.5 lakh||Nil||Nil|
|2.5 lakh-5 lakh||5%||5%|
|Rs.5 lakh-7.5 lakh||20%||10%|
|Rs.7.5 lakh-10 lakh||20%||15%|
|Rs.10 lakh-12.5 lakh||30%||20%|
|Rs.12.5 lakh -15 lakh||30%||25%|
|Rs.15 lakh & above||30%||30%|
|Income Range||Rates as per New Tax Regime
(AY 2024-25 onwards)
|Up to INR 3,00,000||Nil|
|INR 3,00,001 – 6,00,000||5%|
|INR 6,00,001 – 9,00,000||10%|
|INR 9,00,001 – 12,00,000||15%|
|INR 12,00,001 – 15,00,000||20%|
|Above INR 15,00,000||30%|
The choice between the old tax regime and the new tax regime will depend on various factors such as income level, tax-saving investments, and deductions and exemptions available to taxpayers.
For taxpayers with a lower income level and without any tax-saving investments, the new tax regime would be more beneficial as it offers lower tax rates.
The old tax regime is the one that has been in place for many years and is the default option for most taxpayers. Under this regime, taxpayers can claim a variety of deductions and exemptions to reduce their taxable income. Some of the most popular deductions include those for investments in instruments such as Public Provident Fund (PPF), Equity Linked Saving Scheme (ELSS), and National Pension System (NPS). Taxpayers can also claim deductions for expenses such as home loan interest, medical expenses, and donations to charitable organizations.
The new tax regime was introduced in the Budget Under this regime, taxpayers cannot claim deductions for investments or expenses, but the tax rates are lower than those in the old regime. For example, under the new regime, taxpayers with income up to Rs. 15 lakh are subject to a tax rate of 25%, whereas under the old regime, they would be subject to a tax rate of 30%.
So, which regime is better? It depends on your individual financial situation. If you have a lot of investments and expenses that qualify for deductions and exemptions, the old regime may be better for you as it can help you reduce your taxable income and, therefore, your tax liability. On the other hand, if you don’t have many investments or expenses that qualify for deductions, the new regime may be a better option as it offers lower tax rates.
It’s important to note that once you choose a tax regime for a financial year, you cannot switch to the other regime until the following financial year. So, make sure to carefully evaluate your options before making a decision.
In conclusion, both the old and new tax regimes have their own advantages and disadvantages, and which one is better for you depends on your individual financial situation. If you’re not sure which regime to choose, it may be a good idea to consult a tax professional who can help you make an informed decision.