Income Tax: New Regime & Old Regime – Which One Is Better?

According to the Income Tax Act, 1961 paying income tax is compulsory for individuals and companies if the annual earnings exceed a certain specified exempt limit. Taxpayers are given some exemptions and deductions under different sections of the Act.

What is the income tax slab in India?

Individuals across the country earn different incomes and levying taxes at a standard rate would not be a fair policy. Therefore, the Income Tax Act, 1961 segregates income in different ranges, and tax is levied at various rates based on this classification. These rates at which tax is levied are known as tax slabs.

In addition to the annual income, the tax rates vary based on the ages of the taxpayers and the classification of the entities. While determining the Budget every year, the Central Government amends and revises the tax slab rates.

Once these proposed amendments and revisions are approved by the Parliament, the rates become legally applicable.

Income tax for different amount of Salaries in Old Tax and New Tax Regime

Note: No deductions and exemptions are considered for calculations. Know more below for individual regimes.

New Tax Regime slabs (2024-2025) for all Individuals

As per the new regime, the tax rates are the same for all individuals and Hindu Undivided Families (HUFs).

Therefore, the same rate is applicable whether you are below 60 years, aged between 60 and 80 years, or are over 80 years old. In this regime, no additional basic income exemption limit is available for senior citizens and super senior citizen taxpayers.

The income tax slabs under the new regime are as follows:

Note:

• These slabs are applicable for individuals and Hindu Undivided Families (HUFs) opting for the new tax regime.
• There is no additional rebate under Section 87A in the new regime.
• The standard deduction has been increased from ₹50,000 to ₹75,000 under the new regime.
• Surcharge and health and education cess are applicable over and above the tax rates.

Things you should know while opting for the new tax regime

The option has to be exercised on or before each previous year where you as an individual or an HUF have no income from business operations

Once you choose any tax regime as your option, the decision is irreversible during the same year. Suppose you continue with the old regime and want to withdraw your option and switch to the new regime; you can do so during the next financial year.

The following deductions and exemptions are not available in the new regime:

• Leave travel allowance (LTA)
• Deductions under Chapter VI-A, except section 80CCD (2)
• House rent allowance (HRA)
• Housing loan interest under section 24
• Conveyance
• Professional tax
• Daily expenses incurred during your regular course of employment
• Standard deduction
• Relocation allowance
• Other special allowance under section 10 (14)
• Helper allowance
• Children education allowance

Income tax slabs as per old regime

Senior citizens (from 60 to 80 years old)

Super senior citizens (80+ years old)

Here is an example to help you understand.

New Tax Regime Deductions & Exemptions:

• Income threshold rebate eligibility: ₹7 lakh
• Standard Deduction: ₹75,000
• Effective Tax-Free Salary income: ₹7.75 lakh
• Rebate u/s 87A: ₹25,000
• HRA Exemption: Not available
• Leave Travel Allowance (LTA): Not available
• Other allowances: Not available
• Entertainment Allowance and Professional Tax: Not available
• Gifts Up to INR 50,000: Available
• Exemption on voluntary retirement 10(10C): Available
• Exemption on gratuity u/s 10(10): Available
• Exemption on Leave encashment u/s 10(10AA): Available
• Daily Allowance: Available
• Conveyance Allowance: Available
• Transport Allowance for a specially-abled person: Available
• Perquisites for official purposes: Available
• Interest on Home Loan u/s 24b: Not available for self-occupied or vacant properties; available for let-out properties
• Deduction u/s 80C: Not available for EPF, LIC, ELSS, PPF, FD , etc.
• Employee’s (own) & Employer’s contribution to NPS: Not available
• Medical insurance premium – 80D: Not available
• Disabled Individual – 80U: Not available
• Interest on education loan – 80E: Not available
• Interest on Electric vehicle loan – 80EEB: Available
• Donation to Political party/trust etc – 80G: Not Available
• Savings Bank Interest u/s 80TTA and 80TTB: Not available
• Other Chapter VI-A deductions: Not available
• All contributions to Agniveer Corpus Fund – 80CCH: Available
• Deduction on Family Pension Income: Not available

Old Tax Regime Deductions & Provisions

• Income level for rebate eligibility: ₹5 lakh
• Standard Deduction: ₹50,000
• Effective Tax-Free Salary income: ₹5,50,000. It also varies depending on the various deductions & exemptions too.
• Rebate u/s 87A: ₹12,500
• HRA Exemption: Available
• Leave Travel Allowance (LTA): Available
• Other allowances: Wide range of allowances available
• Entertainment Allowance and Professional Tax: Available
• Perquisites for official purposes: Available
• Interest on Home Loan u/s 24b: Available for self-occupied or vacant properties; available for let-out properties
• Deduction u/s 80C: Available
• Employee’s (own) contribution to NPS: Available
• Employer’s contribution to NPS: Available
• Medical insurance premium – 80D: Available
• Disabled Individual – 80U: Available
• Interest on education loan – 80E: Available
• Interest on Electric vehicle loan – 80EEB: Available
• Donation to Political party/trust etc – 80G: Available
• Savings Bank Interest u/s 80TTA and 80TTB: Available
• Other Chapter VI-A deductions: Available
• All contributions to Agniveer Corpus Fund – 80CCH: Available
• Deduction on Family Pension Income: Available
• Gifts Up to INR 50,000: Available
• Exemption on voluntary retirement 10(10C): Available
• Exemption on gratuity u/s 10(10): Available
• Exemption on Leave encashment u/s 10(10AA): Available
• Daily Allowance: Available
• Conveyance Allowance: Available
• Transport Allowance for a specially-abled person: Available

Old tax regime vs. new tax regime: Which is better?

The new regime is beneficial if your taxable income is up to INR 15 lakhs per year. However, if you are in the high-income category, continuing under the old regime may be more advantageous.

The new regime is beneficial if you are someone who makes lesser investment. Since the new regime provides lower tax rates on income tax slabs, you pay taxes without claiming any deductions, thus, the lower rate can be beneficial.

For example, if your income before deductions is up to INR 12 lakhs, the tax liability under the old regime will be higher if your investments are less than INR 1.50 lakhs. Therefore, if you do not invest much in tax-saving instruments, opting for the new regime can reduce your tax liability.

However, if you are already investing in different tax-saving products, have life and health insurance policies, pay children’s tuition fees, have education and home loans to pay off, and so on, continuing under the old tax regime provides higher deductions, thus reducing your tax liability.

Here is an example to help you compare the tax liability under both regimes and make an informed decision.

Assume your income is INR 12 lakhs per annum and you have investments and loan up to Rs. 2 lakhs in different tax-saving instruments and life insurance premiums and including a home loan. Also, you have a life insurance premium. Under the old regime, all these expenses are tax-deductible.

The tax liability under the two regimes is as below:

Why new tax regime for the FY 2020 – 21 was optional?

For income earned in the financial year (FY) 2020-21, the taxpayers had the option to choose one of the following.

• Pay income tax at a lower rate according to the new tax regime but forego some of the permissible tax deductions and exemptions available under the Income Tax Act, 1961.
• Pay income tax under the existing old regime with higher rates and avail of the various exemptions and rebates provided by the Income Tax Act, 1961.

Frequently Asked Questions (FAQs)

Is it compulsory to opt for the new tax regime?

No, it is an optional scheme to simplify the tax-filing procedure. Remember that New Tax Regime is the default selection. You may choose the new or the old regime at the start of the financial year, which can be changed in the next year if required.

Are section 80C deductions available under the new tax regime?

No, the new regime does not allow section 80C and several other deductions under the Income Tax Act, 1961 due to the lower tax rates.

Who determines the tax rates?

The tax rates are proposed in the annual Union Budget and approved by the Parliament before being applicable. The government may change the rates from one year to another.

Which tax regime is better for 25 lakhs in India?

New tax regime will benefit you if your income is ₹25 lakh and your tax deductions are less than ₹3,75,000.

Which tax regime is better for 30 lakhs in India?

New tax regime will benefit you if your income is ₹30 lakh and your tax deductions are less than ₹3,75,000.