Comparative Analysis of Old Tax Regime vs New Tax Regime under Income Tax Act, 1961

Union Minister Nirmala Sitharaman has presented the Budget 2024-25 in Parliament, announcing certain new benefits for the taxpayers opting out of the new tax regime. Though the new tax regime has a comparatively lower tax rate slab, it lacks numerous exemptions and deductions as compared to the old tax regime. 

It is essential to learn the difference between the old and new regimes in FY 2024-25 (AY 2025-26) to efficiently reduce your taxable income while the ITRs (Income tax Returns). This newly updated Budget and tax alterations have created confusion in the taxpayer’s mind.

In this blog, we’ll learn the old and new tax regimes, then the difference between them, and then finish with which is better for you. Let’s begin!

What is New Tax Regime 

Enforced from April 1, 2020 (FY 2020-21), the Indian Government has implemented a new optional tax regime for individuals and Hindu Undivided Families (HUF), wherein tax slabs were altered, and taxpayers have come across with concessional tax rates. 

Consequently, Section 115 BAC was added to the Income Tax Act of 1961. However, the new tax regime lacks various deductions and exemptions, including HRA, LTA, 80C, 80D, and more. 

Moreover, considering the revisions suggested in the Union Budget 2023, the Income Tax Department has designated the new tax regime as the default one, and taxpayers are required to opt for the old tax regime if they want to use it. 

In recent times, the government has made five significant adjustments in Budget 2023 to benefit the taxpayers and encourage them to accept the new regime. 

New Tax Regime Slab Rate 

Nirmala Sitharaman has made certain alterations in the tax slab in Budget 2023 and Budget 2024. 

Features of New tax Regime 

1. Reduced Tax Rate

The new tax regime offers comparatively lower tax rates for the different income tax slabs. However, it misses various deductions and exemptions which were present in the previous tax regime. You can see that in the table above. 

We’ve created a detailed tax slab at the bottom of the article, showcasing a clear difference between the difference in tax rates of the old and new regimes.  

2. Increased Rebate Limit

In the new tax regime, a total rebate of INR 7 lakhs has been introduced, which means that people earning up to INR 7 lakh don’t need to pay any taxes. The threshold in the previous tax regime was only INR 5 lakh. 

3. Default Regime

The Income Tax Department has set the new tax regime as the default one, and you’ll be required to choose the old one from now on. In simple words, if you don’t inform your employer which regime you want to opt for, then you’ll be taxed according to the new tax rates. 

4. Standard Deduction and Family Pension Deduction

• Family Pension: Those families who receive a pension are liable to get a deduction of INR 25,000 or 1/3rd of the amount of the pension, whichever is less, as per the new tax regime. 
• Salary Income: As per budget 2024, the standard deduction has been increased to INR 75,000 in the new tax regime from INR 50,000 in the old tax regime. 

5. Surcharge Reduction for High Net-Worth Individuals (HNIs)

Over INR 5 crores, the surcharge rate has been decreased from 37% in the old tax regime to 25% in the new regime. This new surcharge has effectively reduced the tax rate from 42.74% to 39% for high-net-worth individuals. 

6. Higher Leave Encashment Exemption

For non-government workers, the INR 3 lakh exemption limit on leave encashment has been raised to INR 25 lakhs. It is an 8-fold increase. 

7. No LTG Benefit

As per the new tax regime tax slab, Long-Term Capital Gains (LTCG) benefits are not available anymore over the debt funds invested after 31st March 2023. 

8. Insurance Plans

According to Budget 2023-24, income earned through traditional insurance policies where the premium exceeds INR 5 lakh will not be tax-free. 

What is Old Tax Regime 

The Old Tax Regime refers to the tax system that prevailed before the implementation of the new tax regime. Under the old tax regime, taxpayers can have the benefit of over 70 exemptions and deductions available, including HRA and LTA, allowing them to significantly reduce their taxable income. 

For instance, a deduction under Section 80C is a very common deduction, allowing you to reduce the taxable income up to INR 1.5 lakhs. Head to the next section to learn more about the old tax regime. 

Old Tax Regime Slab Rate

Features of Old Tax Regime

1. Old Tax Slabs 

Income Tax old Regime tax slab ranges between 0-30% per annum, based upon different income levels that you can see in the table above.  

At the bottom of the article, we’ve created a detailed table showcasing the tax rates on old vs new regimes, allowing you to instantly compare the difference between both and tax the best decision. 

2. Deductions and Exemptions 

The old tax regime offered over 70 different deductions and exemptions, including Section 80C, Section 10(10D), HRA (House Rent Allowance), LTA (Leave Rent Allowance), and more. Using these deductions and exemptions allows you to reduce your taxable income and tax obligations.  

4. Tax Rebate 

Under Section 87A of the old regime, you can get a tax rebate on income up to INR 5 Lakhs. 

5. Standard Deduction  

In the old tax regime, taxpayers can get a deduction of INR 50,000 over their income. 

6. LTG Benefits

As per the old tax slab regime, taxpayers can easily get the Long-Term Capital Gains (LTCG) benefits over their investments in debt funds. 

Old Tax Regime vs New Tax Regime: Tax Slab Rate 

In this section, we’ve created a completely new table considering the newly altered rates released under Budget 2024. 

For more clarification:

• Individuals: up to age 60 years.
• Senior Citizens: aged between 60-80
• Super Senior Citizens: age 80+ years

Income Tax Rates for Individuals 

Income Tax Rates for Senior Citizens 

Income Tax Rates for Super Senior Citizens 

Income Tax Rates for Non-Residents

NOTE: NRs are also required to pay the surcharge and cess, similar to the case of residents. 

Old Tax Regime vs New Tax Regime: Exemptions and Deductions

Difference Between Old vs New Tax Regime: Which Should You Choose?

While deciding between the old and new tax regimes, you must consider the exemptions and deductions available under the old tax regime. They not only reduce your tax income but also encourage you to invest for your future. Moreover, once you calculate your net taxable income as per the old tax regime, you will be able to efficiently compare it with the new tax regime. 

You must opt for the regime with the lower tax liability. Make sure to inform your employer regarding which tax regime you would like to choose. This will allow them to use the appropriate TDS (Tax Deducted at Source) to deduct your salary. 

Do not forget to consider the loss from the house property, capital gains, or business & profession, as it will allow you to make more informed decisions. Hence, choose the regime based on your salary and in which exemptions or deductions you fit. 

Conclusion 

After certain significant changes made by FM Nirmala Sitharaman, everyone is getting a little confused regarding how they need to file their taxes. This blog has very simply clarified both the new tax regime and the old tax regime, and it will help you decide which regime is better in your case. We hope this guide helps you understand everything you need to know about the new tax regime after the Budget 2024. 

Also Read : Union Budget 2024-25: Key Highlights

Frequently Asked Questions 

Why has the Government introduced the new tax regime?

For a very long time, taxpayers were demanding an increase in the tax slabs and a lowering of the tax rates. Thus, the Indian government has introduced a new tax regime to reduce the tax rates. However, they have also eliminated 70 out of the 100 exemptions to simplify the tax filing procedure. Moreover, tax authorities have kept it optional for taxpayers to choose between the old and new tax regimes and choose the one that benefits them the most. 

Which exemptions/deductions are unavailable under the new tax regime?

Under the new tax regime, 70 out of the 100 exemptions are removed, leaving taxpayers to not be able to implement them. Below, we’ve mentioned some of the most populous exemptions that are not available anymore in the new tax regime. 

• House Rent Allowance (HRA) u/s 10(13A)
• Leave Rent Allowance (LTA) u/s 10(5)
• Food coupons and other tax-free allowances and perquisites
• Deductions under Chapter VI of the ITA include Sections 80D, 80C, 80TTA, and more. 
• Allowances u/s 10(14)
• Deduction for Home Loan interest paid for self-owned house property u/s 24(b) and Section 80 EEA. 

Which exemptions and deductions are still available under the new tax regime?

Here’s the list of deductions and exemptions available under the new tax regime:

• Contribution of the employer to the NPS (National Pension Scheme) for up to 14% of the employee’s salary u/s 80CCD (2). 
• 30% standard deductions from net rental income if your house property is let out. 
• Transport allowance exemptions are still available so that Divyang employees can bear the daily travel expenses from the workplace to home. 
• Interest paid over the home loan can also be deducted from the rental income of the house property. However, you can remove the loss registered due to the House Property head from any income head. 
• A conveyance allowance is also still available to bear the conveyance expenses for performing the official duty. 
• Allowances granted are still available to bear the travelling cost on tour or for the transfer of employees. 
• Daily allowances for day-to-day ordinary expenses are also still available in case of absence from his/her normal place of duty. 
• Standard deduction of Rs.75,000 (after Budget 2024) from the salary income under Section 16. 

Is it possible to switch between the old and new tax regimes?

Yes, employees can switch between the old and new tax regimes every year before filing the ITR (Income tax Returns). 

Are HRA and LTA allowed under the new tax regime?

No, HRA (House Rent Allowances), LTA (Leave Travel Allowance), and other entertainment allowances are not allowed in the new tax regime. 

Which tax regime is better, old or new, for senior citizens?

The old tax regime is a better option for senior citizens; they generally have multiple sources of income, including pension, interest income, rental income, etc. Using the old tax regime allows them to utilize various deductions such as 80C, 80TTB, 80D, and more. However, it is better to calculate your tax liability under both regimes and then select the befitting based on your investment portfolio and long-term investing. 

What are the benefits of a new tax regime?

Here’s the list of benefits of the new tax regime: 

• It is simple to calculate and, in fact, reduces the complexity of tax planning due to fewer deductions and exemptions. 
• It offers lower tax rates.  
• It has very clear guidelines, eliminating the scope for ambiguities and disputes. 
• Increased NPS contribution from the employer’s end, allowing you to have enhanced long-term savings. 

 Is there a 50,000 standard deduction in the new tax regime?

After Budget 2024 was presented by Finance Minister Nirmala Sitharaman, the standard deduction increased to Rs.75,000 from Rs.50,000, which was available under the old regime. 

Will you save more tax in the new regime or the old one?

Determining whether you’ll save more money in the new tax regime or the old tax regime will highly depend upon the individual’s finances. Some of the factors to consider before choosing the tax regime are – income level, available deductions and exemptions, investment patterns, and age and dependents. 

Taking up a general idea, taxpayers are divided into three categories to decide which regime would be best suited for them. 

• High-Income Earners: may generally opt for the new tax regime to save more taxes. 
• Low- to middle-income earners may find the old tax regime more worthwhile due to various deductions and exemptions. 
• Individuals with minimal deductions may probably go for a new regime due to its simplicity.

It is advisable to use a tax calculator or take professional guidance to determine exactly where you can save more money.

Is the NPS deduction available under the new tax regime?

Yes, the NPS deduction is available in the new regime. Nirmala Sitharaman has proposed to extend the deduction of 14% for employees of all categories (governmental and nongovernmental). 

Shraddha Vaviya Content Writer

With several years of experience, I am deeply passionate about writing and enjoy creating content on topics such as GST, tax and various finance-related subjects. My goal is to make complex financial matters understandable for readers by simplifying them.

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