New Tax Regime vs Old Tax Regime Slabs

The “New Tax Regime” and “Old Tax Regime” refer to two different systems of income tax calculation in India. Under the old tax regime, taxpayers could claim various deductions and exemptions under the Income Tax Act, of 1961 while the new tax regime offers reduced tax rates but eliminates most deductions and exemptions. Under Union Budget 2024, some changes were proposed in the new tax regime for FY 2024-25. Let’s compare the New Tax Regime vs the Old Tax Regime in this Article.

Budget 2024: Changes in New Tax Regime

Finance Minister Nirmala Sitharaman proposed changes in the new tax regime for FY 2024-25:

Overview of New Tax Regime and Old Tax Regime

New Tax Regime

• The new tax regime was introduced in April 2023 to simplify the tax structure and reduce tax rates.
• The basic income exemption limit set at Rs 3 lakh for all taxpayers.
• Offers more income tax slabs with lower tax rates compared to the old regime.
• Standard deduction of Rs 50,000 from salary/pension income available.
• Allows deduction for employer’s contribution to NPS account up to 10% of salary (14% for government employees).

Old Tax Regime

• Traditional tax regimes existed before the introduction of the new regime.
• Allows taxpayers to claim various deductions and exemptions from gross total income to reduce taxable income.
• Offers deductions under sections such as 80C, 80D, 80E, and others for investments, insurance premiums, and loan interest payments.

New Tax Regime vs Old Tax Regime: Comparative Analysis

Tax Rates and Slabs

• New regime offers lower tax rates across multiple income slabs compared to the old regime.
• However, availability of deductions under the old regime can sometimes result in lower tax liability for certain taxpayers.

Deductions and Exemptions

• Old regime provides a wide range of deductions and exemptions, including those under sections 80C, 80D, and 80E.
• New regime limits deductions to a standard deduction of Rs 50,000 and employer’s NPS contribution.

Flexibility vs. Simplicity

• Old regime offers flexibility with multiple deductions, allowing taxpayers to tailor their tax planning strategies.
• New regime offers simplicity with fewer deductions, making tax compliance easier for some taxpayers.

Considerations for Taxpayers

• Income Level: Tax liability under each regime varies based on the taxpayer’s income level and the amount of deductions claimed.
• Deduction Eligibility: Taxpayers must evaluate their eligibility for deductions and exemptions available under both regimes.
• Long-term Financial Goals: Taxpayers should consider their long-term financial goals and tax planning objectives when choosing between the regimes.

How to Choose Between Old and New Tax Slabs?

To decide between the two regimes:

1. Calculate your total eligible deductions and exemptions under the old regime.
2. Compare your tax liability under both regimes.
3. Choose the regime with the lower tax liability.
4. Inform your employer of your choice for the appropriate TDS deduction.

Consider any losses from house property, capital gains, or business and profession when making your decision.

Conclusion

The choice between the old and new tax regimes depends on individual financial situations. The old regime encourages savings through various exemptions and deductions, while the new regime offers simplicity and lower rates. Evaluate your personal deductions and exemptions to determine the best fit for your tax situation.

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