Summary
During the financial year 2024-2025, Indian tax payers face some issues to make a decision: continue with the old tax regime or switch to the new tax regime.
In this insight, you will learn about old and new tax regimes and easily make decisions.
Old vs New Tax Regime: Key Updates
| Tax Slabs | Old Regime Rate (FY 2024-25) | New Regime Rate (FY 2024-25) |
| Upto ₹3 lakh | Nil | Nil |
| ₹3 lakh - ₹7 lakh | 5% | 5% |
| ₹7 lakh - ₹10 lakh | 20% | 10% |
| ₹10 lakh - ₹12 lakh | 30% | 15% |
| ₹12 lakh - ₹15 lakh | 30% | 20% |
| More than ₹15 lakh | 30% | 30% |
The new structure retains a tax rebate on up to ₹7 lakh income, adds a standard deduction of ₹75,000 and has lower surcharge rates for the super-rich than earlier.
New Tax Regime: A Fresh Perspective
In Budget 2020, the new taxation system set out fewer rates for income tax with more ease on the tax brackets.
Here's how recent changes make it more appealing:
1. Higher Tax Rebate Limit:
Under the new regime, those earning up to ₹7 lakh a year will not pay any tax due to the raise in the rebate limit.
2. Streamlined Tax Slabs:
The benefits of the new slabs are easier to calculate because they propose to decrease the previous tax amounts for middle-income earners, especially those in the ₹7 lakh to ₹12 lakh income bracket.
3. Enhanced Standard Deduction:
Additional deductions of ₹25,000 for the standard deduction for the salaried employees up from ₹50,000 in the old regime.
4. Reduced Surcharge for HNWIs:
Taxpayers with income above ₹ 5 crores are at present subjected to a surcharge of 37 percent; it has now been proposed to bring it down to 25 percent, meaning that those earning more than ₹ 5 crore will certainly get a break in the effective tax rate.
5. Flexibility to Switch:
Taxpayers can now switch between regimes annually by filing Form 10-IEA with their income tax return.
Old Tax Regime: A Tried-and-Tested Approach
The old tax system has many exemptions and deductions different from the new one that is still famous among people. Various tax deductions include around 72 tax deductions, which include HRA, LTA, Section 80C, etc. The only major strength of the old regime is its ability to cause a huge reduction in taxable income.
Key benefits of the old regime include:
1. Section 80C: Reduction of up to ₹1.5 lakh for the investments made in ELSS, PPF, NSC, etc.
2. HRA Exemption: Helps the better-positioned employee or a salaried employee living in a rented house or apartment to minimize or reduce his tax burden.
3. Mediclaim (Section 80D): It permits users to make deductions on payments made towards health insurance.
However, the method used in the old regime is a little complicated, but it is more favourable for individuals who earn high income and those who have made investments in tax-saving instruments.
Which tax regime is best for salaried employees?
New Tax Regime: Best for Simple Filings
The new tax regime is ideal for individuals who:
- They should not have large stakes in the tax-saving instruments.
- It is preferable to opt for simple computation of tax without even requesting an exemption.
- Do not earn an annual income of more than ₹7 lakh per annum because they can now avail 100% rebate.
Old Tax Regime: Suitable for a Ledger Than Maximize Deductions
The old tax regime works better for individuals who:
- Earnings more than 2.5 lakhs per annum may afford exemptions HRA, LTA, 80C bank interest, etc.
- City employees may own life insurance policies, mutual funds, or make contributions to provident funds.
- Can take exemptions in the levy of tax for health insurance under Section 80D, education loans under Section 80E and many others.
Example Comparison: New vs Old Regime
Supppose a salaried employee with an income of ₹10 lakh.
| Details | Old Regime | New Regime |
| Gross Income | ₹10,00,000 | ₹10,00,000 |
| Standard Deduction | ₹50,000 | ₹75,000 |
| Section 80C Deduction | ₹1,50,000 | N/A |
| Taxable Income | ₹8,00,000 | ₹9,25,000 |
| Tax Payable | ₹54,600 | ₹46,500 |
However, with the new minimum tax rate, it might still be worthwhile for certain persons to work under the old regime because its deductions are better. One has to compare both the calculations of your taxable income in order to choose the better regime.
Benefits of both New and Old tax regime
Benefits of the New Regime
Simplified Structure: Similar to above, less complication and easy to comprehend
Higher Basic Exemption: No tax up to ₹7 lakhs
Lower Surcharge: Decreased from thirty-seven percent to twenty-five percent for those who earn high income.
Default Option: Applies as soon as the user decides not to take part in the exempted regular practice
Benefits of the Old Regime
Multiple Deductions: 30+ distinctive exemptions and deductions that a company can enjoy
Section 80C Benefits: Deduction up to ₹1.5 lakh
Additional Benefits: HRA, LTA, and other tax-saving investments
When should you choose an old and new tax regime?
The decision between old and new regimes depends on your individual circumstances.
Choose New Regime If:
- Your income is below ₹7 lakhs
- As for taxation, you want a system that is significantly less complicated.
Choose Old Regime If:
- You surely manage your resources for tax-saving tools.
- You have gross allowances such as home loan interest
- The larger picture, however, is that your total deductions exceed the tax benefit from the new regime.
Don’t delay; your small effort today can save a lot of money tomorrow!
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