In the realm of taxation, it’s crucial for taxpayers to grasp the disparities between the old and new tax regimes to make well-informed financial decisions. If you’re pondering the choice between the new regime and the old one, which holds the upper hand? Let’s delve deeper into this matter, recognizing that the answer can vary depending on individual income levels.
In the preceding Union Budget of 2023, the finance minister introduced alterations to the tax rates. The new Tax Regime has been designated as the default option, affording taxpayers the flexibility to stick with the old tax regime or opt for the default regime based on their preference.
The Finance Act of 2023 brought about amendments to section 115BAC, ushering in reduced tax rates under a new tax scheme commencing from the assessment year 2024-25. This new scheme now serves as the default choice for taxpayers and has been extended to encompass Associations of Persons (AOP), Bodies of Individuals (BOI), and Artificial Juridical Persons (AJP).
New Regime
According to the proposal, the applicable tax rates shall be as follows if an individual or HUF opts not to claim various exemptions or deductions provided under the Act:
(New Tax Regime Rates for FY 23-24 Onwards)
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| Income Slab | Rates |
| Up to Rs 3 Lakh | Nil |
| Rs 3 Lakh to 6 Lakh | 5% |
| Rs 6 Lakh to 9 Lakh | 10% |
| Rs 9 Lakh to 12 Lakh | 15% |
| Rs 12 Lakh to 15 Lakh | 20% |
| Income above 15 Lakh | 30% |
After reviewing the information above, it’s important to note that certain deductions and benefits will not be available if an individual opts for the new tax structure:
1. Leave Travel Allowance under section 10(5)
2. House Rent Allowance under section 10(13A)
3. Deductions under sections 80C to 80U
However, individuals can still claim deductions under the new tax regime for:
1. Standard Deduction under Section 16(ia)
Employer’s Contribution to National Pension Scheme (NPS) under Section 80CCD(2), which includes employer’s contributions to 2. the pension scheme.
(i) Sec 80CCD(2) i.e. This benefit is for salaried individuals. Government employees can claim 14%, and private sector employees can claim 10% of their salary under this section.
(ii) 80CCH(2) – If the Central Government contributes to an individual’s Agniveer Corpus Fund account, that individual can deduct the entire contribution from their total income when calculating taxes.
(iii) 80JJAA – Section 80JJAA in the Income Tax Act allows businesses to deduct 30% of increased employee expenses for three consecutive assessment years.
Tax Rebate Limit
Additionally, in the new tax regime, resident individuals with a total income not exceeding Rs. 7,00,000 in the previous year are eligible for a rebate.
The rebate amount is limited to Rs. 25,000, and no rebate is granted if the total income exceeds Rs. 7,00,000.
Old Regime
The old regime is the tax system that prevail before introducing the new tax regime.
| Income Slab | Rates (Age below 60 years) | Rates (Age above 60 years) | Rates (Age above 80 years) |
| Up to Rs. 250000 | Nil | Exempt up to Rs 300000 | – |
| Rs. 250000 to Rs. 500000 | 5% | 5% | Exempt up to Rs 500000 |
| Rs. 500000 to Rs.100000 | 20% | 20% | 20% |
| Income above Rs. 1000000 | 30% | 30% | 30% |
In the old tax system, various deductions are accessible, such as:
– Section 80C
– Section 80D
– Section 80G
– Section 80E
– Section 24
– Standard Deduction
– HRA Exemption
– Transport Allowance
– Leave travel allowance
– Section 80CCD
– Section 10(14)
These deductions and exemptions are commonly utilized under the income tax act.
Tax Rebate Limit
Under the old tax regime, resident individuals with a total income not exceeding Rs. 5,00,000 in the previous year are eligible for a rebate.
The rebate amount is limited to Rs. 12500, and no rebate is granted if the total income exceeds Rs. 5,00,000.
Example: As per New Regime
Annual Income of Mr. A: Rs 600000
Deduction under sec 80C – 80U: Rs 15000
Solution –
Annual Income = Rs 600000
Taxable Income = Rs 600000 @ Slab Rate
| Particulars | Taxable Rate | Amount |
| First Rs 300000 | Exempt | NIL |
| Next Rs 300000 to Rs 600000 | 5% | Rs 30000 |
| Tax payable before Health & Education Cess | Rs 30000 | |
| Add: 4% Health & Education Cess | Rs 1200 | |
| Tax Payable of Mr. A | Rs 31200 |
Note: No deductions are available under the new tax regime.
Example: Tax Calculation with Rebate for above example under new regime
| Particulars | Taxable Rate | Amount |
| First Rs 300000 | Exempt | NIL |
| Balance Rs 300000 | 5% | Rs 15000 |
| Tax payable | Rs 15000 | |
Rebate under section 87A: a) Rs. 25000 or b) Tax payable whichever is less | Rs 15000 | |
| Tax Payable of Mr. A | 0 |
Example: As per Old Regime
Annual Income of Mr. A: Rs 600000
Deduction under sec 80C to 80U: Rs 15000
| Particulars | Amount |
| Annual Income | Rs 600000 |
| Less: Deduction u/s 80C to 80U | Rs (15000) |
| Taxable Income | Rs 585000 |
Taxable Income 585000@slab Rate
| Particulars | Taxable Rate | Amount |
| First Rs 250000 | Exempt | NIL |
| Next Rs 250000 to Rs 500000 | 5% | Rs 12500 |
| Balance Rs 85000 | 20% | Rs 17000 |
| Tax payable before Health & Education Cess | Rs 29500 | |
| Add: 4% Health & Education Cess | Rs 1180 | |
| Tax Payable of Mr. A | Rs 30680 |
Cases where deductions and exemptions are being availed upto Rs. 50,000/-
| Total Income of the Assessee before availing deductions/ exemptions | Tax Liability as per old structure (after taking deductions and exemptions) | Tax liability under new structure (without benefit of deductions and exemptions) | Saving under new regime |
| 5,00,000 | NIL | NIL | NIL |
| 6,00,000 | 23400 | NIL | -23400 |
| 10,00,000 | 106600 | 62400 | 44200 |
| 13,00,000 | 195000 | 114400 | 80600 |
| 17,00,000 | 319800 | 218400 | 101400 |
| 20,00,000 | 413400 | 312000 | 101400 |
Cases where deductions and exemptions are being availed upto Rs. 1,00,000/-
| Total Income of the Assessee before availing deductions/exemptions | Tax Liability as per old structure (after taking deductions and exemptions) | Tax liability under new structure (without benefit of deductions and exemptions) | Saving under new regime |
| 5,00,000 | NIL | NIL | NIL |
| 6,00,000 | NIL | NIL | NIL |
| 10,00,000 | 96200 | 62400 | 33800 |
| 13,00,000 | 179400 | 114400 | 65000 |
| 17,00,000 | 304200 | 218400 | 85800 |
| 20,00,000 | 397800 | 312000 | 85800 |
Cases where deductions and exemptions are being availed upto Rs. 1,50,000/-
| Total Income of the Assessee before availing deductions/exemptions | Tax Liability as per old structure (after taking deductions and exemptions) | Tax liability under new structure (without benefit of deductions and exemptions) | Saving under new regime |
| 5,00,000 | NIL | NIL | NIL |
| 6,00,000 | NIL | NIL | NIL |
| 10,00,000 | 85800 | 62400 | 23400 |
| 13,00,000 | 163800 | 114400 | 49400 |
| 17,00,000 | 288600 | 218400 | 70200 |
| 20,00,000 | 382200 | 312000 | 70200 |
Cases where deductions and exemptions are being availed upto Rs. 2,00,000/-
| Total Income of the Assessee before availing deductions/exemptions | Tax Liability as per old structure (after taking deductions and exemptions) | Tax liability under new structure (without benefit of deductions and exemptions) | Saving under new regime |
| 5,00,000 | NIL | NIL | NIL |
| 6,00,000 | NIL | NIL | NIL |
| 10,00,000 | 75400 | 62400 | 13000 |
| 13,00,000 | 148200 | 114400 | 33800 |
| 17,00,000 | 273000 | 218400 | 54600 |
| 20,00,000 | 366600 | 312000 | 54600 |
Cases where deductions and exemptions are being availed upto Rs. 2,50,000/-
| Total Income of the Assessee before availing deductions/exemptions | Tax Liability as per old structure (after taking deductions and exemptions) | Tax liability under new structure (without benefit of deductions and exemptions) | Saving under new regime |
| 5,00,000 | NIL | NIL | NIL |
| 6,00,000 | NIL | NIL | NIL |
| 10,00,000 | 65000 | 62400 | 2600 |
| 13,00,000 | 132600 | 114400 | 18200 |
| 17,00,000 | 257400 | 218400 | 39000 |
| 20,00,000 | 351000 | 312000 | 39000 |
Cases where deductions and exemptions are being availed upto Rs. 3,00,000/-
| Total Income of the Assessee before availing deductions/exemptions | Tax Liability as per old structure (after taking deductions and exemptions) | Tax liability under new structure (without benefit of deductions and exemptions) | Saving under new regime |
| 5,00,000 | NIL | NIL | NIL |
| 6,00,000 | NIL | NIL | NIL |
| 10,00,000 | 546000 | 62400 | -7800 |
| 13,00,000 | 117000 | 114400 | 2600 |
| 17,00,000 | 241800 | 218400 | 23400 |
| 20,00,000 | 335400 | 312000 | 23400 |
Cases where deductions and exemptions are being availed upto Rs. 3,50,000/-
| Total Income of the Assessee before availing deductions/exemptions | Tax Liability as per old structure (after taking deductions and exemptions) | Tax liability under new structure (without benefit of deductions and exemptions) | Saving under new regime |
| 5,00,000 | NIL | NIL | NIL |
| 6,00,000 | NIL | NIL | NIL |
| 10,00,000 | 44200 | 62400 | -18200 |
| 13,00,000 | 106600 | 114400 | -7800 |
| 17,00,000 | 226200 | 218400 | 7800 |
| 20,00,000 | 319800 | 312000 | 7800 |
Conclusion: Choosing between the old and new tax regimes is not a one-size-fits-all decision but rather a strategic choice that should be based on an individual’s specific financial situation, goals, and ability to utilize deductions and exemptions. The new tax regime offers a simplified tax structure with lower tax rates but limits the scope for tax-saving investments and expenses. On the other hand, the old tax regime allows for a wider range of deductions and exemptions, potentially leading to significant tax savings for those who are able to maximize these benefits. Taxpayers must carefully assess their income sources, investment plans, and expenses to determine which regime would be more beneficial. Consulting with a tax professional can also provide personalized advice tailored to individual financial scenarios, ensuring that taxpayers make the most prudent decision for their circumstances.
We are open for comments and suggestions. The above article has been prepared as by Ms. Priyanka Gaud (priyanka.gaud@abacussolutions.co.in) and reviewed by Mr. Suyash Tripathi (suyash.tripathi@abacussolutions.co.in).