Old Tax Regime vs New Tax Regime

As tax season is about to begin, let’s delve into a simplified discussion on the Old Tax Regime vs New Tax Regime. Until last year, the Old Tax Regime was the default scheme, allowing assesses to opt for the New Scheme by filling out Form 10IE. However, starting from FY 2023-24 and onwards, the New Tax Regime will become the default scheme. Though the new regime is now the default tax regime, the old tax regime will continue to exist. Assessee wishing to opt for the Old Tax Regime will need to file Form 10IEA before filing the Income Tax Return. For example, for AY 2024-2025, the due date for filing ITR is 31st July 2024.

  New Tax Regime tax rates (i.e. Default scheme)

Total Income	Rate of Tax
Up to ₹ 300,000	Nil
₹ 300,001- ₹ 600,000	5%
₹ 600,001- ₹ 900,000	10%
₹ 900,001- ₹ 1200,000	15%
₹ 1200,001- ₹ 1500,000	20%
₹ 1500,001 and above	30%

Old Tax Regime rates

Total Income	Individual (<60 years of age)	Senior Citizen (>60 years of age)	Super Citizen (>80 years of age)
Up to ₹ 250,000	Nil	Nil	Nil
₹ 250,000 – ₹ 300,000	5%	Nil	Nil
₹ 300,001- ₹ 500,000	5%	5%	Nil
₹ 500,001- ₹ 10,00,000	20%	20%	20%
₹ 10,00,001 and above	30%	30%	30%

Key points to consider when opting for the New Tax Regime

Total income exceeds	Rate of Surcharge
₹50 lakhs	10%
₹1 crore	15%
₹2 crore	25%
₹5 crore	25% 37%

In Budget 2023, the highest surcharge rate of 37% has been reduced to 25% in the new tax regime, effective from April 1, 2023.

• An additional Health and Education cess of 4% will be levied on the income tax liability and surcharge in all cases.
• From FY 2023-24, a taxpayer having business income wanting to continue with the old tax regime in a financial year, will specifically have to opt for it. Once opted, they would have once in a lifetime option to switch to new tax regime. Once new tax regime is opted, they cannot opt for old tax regime again.
  Whereas for the salary or any other head of income attracting TDS, an employee has the choice to select the tax regime and inform their employer, whereas the default regime shall be new tax regime. It cannot be modified during the year. However, the option can be modified when filing the Income Tax Return.

 

Which is better? Old vs New Tax Regime

Deciding whether to switch to the new tax system or stick with the old one, and figuring out which option is more beneficial for you, depends on the tax deductions and exemptions available to you under the old tax system. If your total eligible deductions and exemptions in the old tax regime are higher than the breakeven threshold for your income level, it is advisable to remain in the old regime. However, if the breakeven threshold is higher, then switching to the new tax regime would be more beneficial.

Deductions	Old Tax Regime	New Tax Regime
Standard deduction from salary	Yes	Yes
Deduction under Section 80C	Yes	No
NPS Self Contribution u/s 80CCD (1B)	Yes	No
NPS Self Contribution u/s 80CCD (2)	Yes	Yes
Medical Insurance u/s80 D	Yes	No
Interest on Education Loan u/s 80E	Yes	No
Interest on Vehicle Loan U/s 80EEB	Yes	No
Leave Encashment u/s 10(10AA)	Yes	Yes
Deduction in respect of Family pension -15000 or 1/3rd of pension whichever is lower	Yes	Yes
Saving Bank Interest u/s 80TTA & 80TTB	Yes	No
HRA Exemption	Yes	No
LTA	Yes	No
Interest on Home Loan (Self-occupied) u/s 24b	Yes	No
Interest on Home Loan (Let out property) u/s 24b	Yes	Yes
Professional Tax	Yes	No
Gratuity exemption u/s 10(10)	Yes	Yes
Donation under Section 80G	Yes	No

*Please note the information provided above is updated till Interim Budget of 2024.