Old Tax Regime vs New Tax Regime: Know Difference!

If you fall in the tax-paying citizen slab, you currently have two options to choose from – new tax regime and old tax regime. With the two tax slab options available, you can choose between them every year. But with the choices given to you, it's easy to get confused about which one to pick. While the old tax regime provides deductions and exemptions, the new tax regime does not have that many exemptions. Today, we'll understand the difference between old and new tax regime and help you decide which one should be your ideal choice. Let's see Old Tax Regime vs New Tax Regime!

The New Tax Regime

For the new tax regime, there are six different tax slabs where there's zero tax for income holders of up to ₹3 Lakh and the percentage of tax rises by 5% for each incremented income of ₹3 Lakh. These tax slabs apply to only those with a taxable income of above ₹7 Lakh. Anyone below the taxable income of ₹7 Lakh is not applicable. Further, the income tax is imposed in slabs. For example, a person earning ₹10 Lakh income is not charged income tax of 15% on the entire income but instead has slabs of tax on their income. So, for income up to ₹3 Lakh, they won't attract any tax, while their income between ₹3 Lakh to ₹6 Lakh will be deducted with 5%, income between ₹6 Lakh to ₹9 Lakh will be imposed 10% tax, and the last ₹1 Lakh will attract 15% of income tax. Additionally, in the new tax regime, you cannot claim exceptions. But as a salaried taxpayer, you can put aside ₹50,000 as a standard deduction.

The Old Tax Regime

There have been no changes in the old tax regime for the financial year 2024, and the old tax regime slabs remain the same. But, choosing the old tax regime comes with loads of exemptions.

• Under the Income Tax Act Section 80C, up to ₹1.5 Lakh exception of income is allowed in tax saving instruments like fixed deposits, select mutual funds, pension funds, ULIPs, or other schemes, like Sukanya Samriddhi Yojana, National Savings Certificate, Senior Citizens Savings Scheme, and more. Repayment made for home loans, life insurance spending, and spending on your children's tuition fees are also included.

• You can claim tax exemption on tax benefits like yours and your parent's health insurance under Section 80D.

• Under Section 80CCD, you can remove ₹50,000 from the taxable income if you invest in NPS.

• You can also claim tax exemptions on house rent allowance based on rent, salary structure, and travel allowance.

How to Choose Between Old and New Tax Regime?

There are two sets of people who can benefit from the new tax regime:

• The first set of people include the ones who earn an income below ₹7 Lakh

• The second set of people include someone earning above ₹7 Lakh but cannot claim exemptions either because they can't invest or don't pay rent, or don’t have a home loan to repay

Here's another trick you can use to know whether the old tax regime or new tax regime suits you. The old regime is for you if you can claim around 40% of your income between home loan, Section 80D, Section 80C, house rent, or other allowed exemptions. Or else the new tax regime can work for you. Let's take the example of someone with an annual income of ₹12 Lakh.

Bottom Line

There have not been any changes in tax slabs since 2014. For the first time, Finance Minister Nirmala Sitharaman introduced a new tax regime in the 2020 budget. The tax slabs move towards a simpler form to lessen the financial burden on Indian taxpayers. By introducing a new tax slab, the taxpayers get to move towards planning their long-term financial goals more efficiently.

FAQs

1. Old tax regime vs New tax regime: Which tax regime is better for people with ₹7 Lakh annual income?

   The new tax regime benefits you if you have an income of ₹7 Lakh and don’t invest much.

2. Which tax regime is good for people with ₹10 Lakh annual income?

   Individuals earning a ₹10 Lakh income can benefit from the old tax regime if they invest more than ₹2.6 Lakhs.

3. Which tax regime is good for you if you have an income of ₹12 Lakh?

   If you save more than ₹3.1 Lakh in tax-saving schemes, then the old tax regime is good for you. But if you have saved less than ₹3.1 Lakh in any tax-saving schemes, the new tax regime is a better choice.