Comparing New Tax Regime with Old Tax Regime

Comparison Between New Tax Regime and Old Tax Regime: With the onset of the new financial year, 2024-25, starting on April 1st, taxpayers must acquaint themselves with the prevailing income tax rates and slabs under both the old and new tax regimes. It’s noteworthy that the new income tax regime has transitioned into the default choice from FY 2023-24 onwards, thereby requiring taxpayers to make a proactive decision regarding their preferred tax regime.

Tax Slabs and Rates Comparison Between New Tax Regime Vs. Old Tax Regime

A fundamental contrast between the old and new tax regimes is found in their tax slabs and rates. The ensuing table depicts the comparison:

The tax exemption threshold has been increased to Rs 3 lakhs. Essentially, the new tax regime introduces additional tax brackets with lower rates for incomes up to Rs. 15 lakhs, while eliminating many exemptions and standard deductions accessible under the old regime.

Standard Deductions In New Tax Regime Vs. Old Tax Regime

The standard deduction of Rs 50,000, once exclusive to the old tax regime, has now been expanded to encompass the new tax regime as well. Consequently, taxpayers are eligible to avail themselves of a standard deduction of Rs 50,000 from their salary income.

Tax Rebate Limit In New Tax Regime Vs. Old Tax Regime

In the new tax regime, a total tax rebate on income up to Rs 7 lakhs has been introduced, marking a notable rise from the previous threshold of Rs 5 lakhs in the old regime. This indicates that individuals earning up to Rs 7 lakhs will be entirely exempt from paying any tax under the new regime.

Deductions Allowed Under Old Tax Regime

In the old tax regime, taxpayers have access to numerous deductions, exemptions, and allowances aimed at diminishing their tax obligations. Typical avenues for tax savings include investments in PPF, ULIPs, ELSS, life insurance premiums, EPF contributions, home loan interest, standard deduction, tuition fees, health insurance premiums, and various others.

Deductions Allowed Under New Tax Regime

Conversely, the new tax regime provides comparatively fewer deductions, such as contributions to NPS and standard deductions for rental accommodations and transportation allowances. Additionally, deductions like income from life insurance, education scholarships, retirement leave encashment, agricultural income, and standard deductions for rental income and salary are also limited in the new tax regime.

Deductions Not Covered in the New Tax Regime

Numerous deductions and exemptions that were available under the old tax regime are not encompassed in the new regime. These exclusions comprise leave travel allowance, house rent allowance, standard deduction, as well as deductions under Sections 80C, 80D, and others.

Surcharge In New Tax Regime Vs. Old Tax Regime

For high net worth individuals earning above Rs 5 crores, the surcharge rate has been decreased from 37 per cent to 25 per cent. This reduction in surcharge lowers their effective tax rate, offering relief to individuals within this income category.

Old Tax Regime Vs. New Tax Regime: Which Is Best?

The decision between the old and new tax regimes relies on individual preferences and financial objectives. Taxpayers selecting the new regime might prioritize investment flexibility and seek to evade instruments with lock-in periods. Nonetheless, before making a decision, it’s advisable to conduct a thorough analysis using an income tax calculator to ascertain which regime better aligns with one’s financial situation and objectives.

(Disclaimer:  The preceding article is intended for informational purposes solely and should not be construed as investment advice. FINOSTRY advises its readers/audience to consult with their financial advisors before making any decisions related to money matters.)