Since the new income tax regime is now available, taxpayers in India have the option of either old or the new regime. The old one comes with a variety of deductions and exemptions, while in the new one, there are lower tax rates available along with lesser deductions and exemptions. Thus, starting 2024 financial year, taxpayers will weigh which regime better suits them, given their income, investment, and goals for the financial year. We break the two down in key differences-the tax rates, deductions available, and which could save you more money.
Understanding the Tax Rates
One of the primary differences between the two regimes lies in the tax rates.
| Income Slab (₹) | Old Regime Tax Rates | New Regime Tax Rates (2023-24) |
|---|---|---|
| 0 – 2,50,000 | Nil | Nil |
| 2,50,001 – 5,00,000 | 5% | 5% |
| 5,00,001 – 7,50,000 | 20% | 10% |
| 7,50,001 – 10,00,000 | 20% | 15% |
| 10,00,001 – 12,50,000 | 30% | 20% |
| 12,50,001 – 15,00,000 | 30% | 25% |
| Above 15,00,000 | 30% | 30% |
The new regime offers lower tax rates across several income slabs. However, the key point to remember is that it does not offer the vast majority of deductions and exemptions that are available under the old regime. This can have a significant impact on the final tax liability.
Deductions and Exemptions: A Key Difference
The choice between the old and new regime largely hinges on the availability of deductions under the old regime, which can significantly reduce taxable income.
A. Old Regime (with deductions and exemptions):
The old regime offers various deductions that taxpayers can claim to reduce their taxable income:
- Section 80C: Up to ₹1.5 lakh can be deducted for investments in instruments like Public Provident Fund (PPF), Employee Provident Fund (EPF), National Savings Certificates (NSC), and insurance premiums.
- Health Insurance (Section 80D): You can claim up to ₹25,000 for health insurance premiums for yourself and your family, and ₹50,000 if insuring senior citizens.
- House Rent Allowance (HRA): Deduction for individuals paying rent, especially useful for salaried individuals.
- Standard Deduction: A deduction of ₹50,000 is allowed for salaried employees.
- Home Loan Interest (Section 24b): Up to ₹2 lakh can be deducted for the interest on a home loan for self-occupied properties.
- Leave Travel Allowance (LTA): This exemption allows for deduction on travel expenses within India.
- Section 80G (Charitable Donations): Deductions for donations made to certain charitable institutions.
- Education Loan Interest (Section 80E): A deduction on interest paid on education loans.
- Savings Account Interest (Section 80TTA/80TTB): Deduction on interest earned on savings accounts and fixed deposits for senior citizens.
B. New Regime (with no major deductions):
The new regime, introduced in FY 2020-21, aims to simplify the tax filing process. It provides lower tax rates but eliminates most deductions and exemptions, apart from a few exceptions:
- Standard Deduction of ₹50,000 for salaried individuals.
- Family Pension Deduction of ₹15,000.
Which Deductions are Available/Not Available?
| Deductions/Exemptions | Old Regime | New Regime |
|---|---|---|
| Section 80C (e.g., PPF, Insurance) | Available | Not available |
| Section 80D (Health Insurance) | Available | Not available |
| Standard Deduction | Available | Available |
| HRA | Available | Not available |
| Section 24(b) (Home Loan Interest) | Available | Not available |
| LTA | Available | Not available |
| Section 80G (Donations) | Available | Not available |
| Section 80E (Education Loan) | Available | Not available |
| Section 80TTA/TTB (Savings Interest) | Available | Not available |
Which Regime to Choose?
- Old Regime: Beneficial if you can claim significant deductions (e.g., 80C, 80D, home loan interest) and reduce your taxable income considerably.
- New Regime: Simplified, with lower tax rates, but suitable if you don’t have many deductions or prefer a hassle-free approach to filing.
Choosing between the old and new regime depends on your income, expenses, and potential deductions. If you have high deductions, the old regime may offer better savings. If not, the new regime could be more favorable due to the lower rates.
When to Choose the Old Regime:
- If you have substantial investments and expenses that qualify for deductions (e.g., investments under Section 80C, health insurance, home loan interest), the old regime could provide greater tax savings.
- Individuals with home loans or significant HRA benefits will likely find the old regime more beneficial.
When to Choose the New Regime:
- If you prefer a simpler tax structure without the hassle of calculating and proving deductions, the new regime might be suitable.
- Taxpayers with fewer deductions and lower investments may benefit from the new regime’s lower tax rates.
Key Points to Keep in Mind for 2024-25
- Tax Rates: The new regime offers lower tax rates but at the cost of losing most deductions.
- Deductions and Exemptions: The old regime allows taxpayers to claim deductions like Section 80C, HRA, health insurance, and home loan interest, which can reduce taxable income.
- Best for Whom: The old regime works well for those with significant investments and home loans, while the new regime suits individuals with simpler financial portfolios.
- Updated Benefits for 2024: In the new tax regime, salaried individuals can still claim the standard deduction of ₹50,000, but most other deductions are not available.
