Old vs New Tax Regime
In this post, we will discuss the choice between the old vs new income tax regimes proposed in the Finance Budget 2020. Find out in this post which regime will benefit you the most
Table of contents:
The Central Board of Direct Taxes (CBDT) has issued a circular dated April 1st, 2023, stating that employers must deduct TDS from the salary for the Financial Year 2023-24 according to the tax regime selected by the employee.
As per the Interim budget 2024-25, No changes have been made to the direct taxes in the Interim Budget of 2024-2025.
If the employee wishes to opt for the old tax regime, they must inform their employer of their choice. Otherwise, TDS will be deducted at the new tax rates by default. It should be noted that the decision to choose the tax regime rests solely with the employee and it cannot be changed during the financial year. However, employees can switch to a different tax regime during tax filing. Those who opt for the new tax regime will have to forego most exemptions and deductions under Chapter VIA, such as HRA, investments under Section 80C, NPS contribution, medical insurance premium, and Leave travel allowance (LTA).
New Tax Regime slab and rates for FY 2024-25
| Annual Income | Tax Rate |
| Up to 3 lakh | Nil |
| Rs.3 lakh to Rs.6 lakh | 5% |
| Rs.6 lakh to Rs.9 lakh | 10% |
| Rs.9 lakh to Rs.12 lakh | 15% |
| Rs.12 lakh to Rs.15 lakh | 20% |
| Above Rs.15 lakh | 30% |
Is new tax beneficial?
Let’s see if the new tax is beneficial for you or not. Taxes are usually confusing, and with 3 more tax slabs, it becomes more confusing for salaried people.
To estimate your tax liability under the new tax regime, you don’t have to perform a detailed calculation. The new tax regime simplifies the tax structure by eliminating various deductions and exemptions. It offers lower tax rates and eliminates the need for complex tax planning strategies. With fewer deductions, tax compliance becomes simpler and taxpayers can choose between the old and new regimes based on their financial circumstances, potentially leading to tax savings.
What goes out and stays
There are some exemptions and deductions that you will not get in the new regime. Check the ones you are claimed under the Old Tax Regime but not available in New Tax Regime;
- House rent allowance – Depends on salary structure and rent paid.
- Housing loan interest – Rs 3.5 lakh for affordable housing, Rs 2 lakh for others.
- Investments under Sec 80C – Rs 1.5 lakh.
- Leave travel allowance (LTA) – Tax-free if claimed once in a block of two years.
- Food Coupons – Rs. 50 per meal per day
- Medical insurance premium – Rs 25,000 (Rs 50,000 for parents or senior citizens).
- Savings bank interest – Rs 10,000 under Sec 80TTA
- Interest income (for senior citizens) – Rs 50,000 under Sec 80TTB
- Education loan interest – Interest paid for 8 consecutive years.
- Disability of self or dependant – Rs 75,000 to Rs 1.25 lakh depending on the disability.
- Treatment of self or dependant for specified disease – Rs 40,000.
What stays
Around 50 tax exemptions have not been revised or altered in the most recent budget. These exemptions include:
- Standard deduction – Rs 50,000.
- Standard deduction on rent – 30% of the rent received
- NPS contribution – Rs 50,000.
- Agricultural income – No limit
- Income from life insurance – If insurance coverage is 10 times the annualised premium
- Retrenchment compensation – Rs 5 lakh
- VRS proceeds – Rs 5 lakh
- Leave encashment on retirement – Rs 3 lakh (No limit for govt workers)
Comparison between Old vs New Tax Slab Rate
Here is a table showing the comparison between the Old and New tax regimes.
| Annual Income | Old Tax Rate | Annual Income | New Tax Rate |
| Up to Rs.2.5 lakh | Nil | Up to Rs 3 lakh | Nil |
| Rs.2.5 lakh to Rs.5 lakh | 5% | Rs.3 lakh to Rs.6 lakh | 5% |
| Rs.5 lakh to Rs.10 lakh | 20% | Rs.6 lakh to Rs.9 lakh | 10% |
| Above Rs.10 lakh | 30% | Rs.9 lakh to Rs.12 lakh | 15% |
| Rs.12 lakh to Rs.15 lakh | 20% | ||
| Above Rs. 15 lakh | 30% |
Pros and Cons of Old vs New Tax Regime
New Tax Regime
Pros –
- Taxpayers have the flexibility to invest their money as they see fit under this scheme. There are no specific rules dictating investments in particular saving instruments, such as tax-saving schemes and insurance, that may not align with their financial goals.
- Employees now have the option to choose between the old and new tax regimes based on their suitability.
Cons –
- Compared to the old tax regime, the taxable amount will be higher without any exemptions or deductions.
- Individuals will be discouraged individuals of long-term financial planning implications.
Old Tax Regime
Pros –
- Over time, it encourages individuals to develop a savings culture by investing in specific tax-saving schemes.
- It enables investments in children’s education, marriage, medical expenses, and more for a secure future.
Cons –
- Under the old tax regime, there were only a few investment options available that could help people save on their taxes.
- Retaining evidence to support deduction claims can be challenging.
- Investments made during the lock-in period may affect liquidity.
- The level of consumption indicates a certain amount of investment commitment.
