Old vs New Tax Regime FY 2024-25 (AY 2025-26)

About the New Tax Regime

In the Union Budget 2020, the Government of India introduced a new regime tax slab for individuals, businesses, and Hindu Undivided Families (HUFs) under Section 115 BAC of the Income Tax Act, 1961. 

This new tax regime has been in effect since 1 April 2020 (FY 2020-21). Later, in Budget 2023, the government introduced a better and new tax structure under Section 115 BAC. 

NOTE: The new tax regime of Budget 2023 replaces the previously introduced new tax regime of Budget 2020 under Section 115BAC of the Income Tax Act.

2024 Budget Update

On 23rd July 2024 Financial Minister Nirmala Sitharaman proposed some changes in the tax structure under the new tax regime. The new tax regime is as follows

Difference between pre-budget and post-budget tax slab

The 2024 Budget has raised the standard deduction in the new tax system to ₹75,000. Additionally, the family pension deduction has been increased from ₹15,000 to ₹25,000. With these adjustments, taxpayers will save ₹17,500 under the updated tax structure.

Key Features of the New Tax Regime:

• Reduced Tax Rates: The new tax regime offers lower tax rates for different income tax slabs. But you have to give up various tax deductions and exemptions in the new tax regime in comparison to the old tax regime.

• Default Option: The new tax regime is now the default option for taxpayers, meaning you have to specifically select the old tax regime if you wish to utilise it.

• Higher Exemption Limit: The basic tax exemption limit in the new tax regime has been increased from Rs. 2.5 lakhs in the old tax regime slabs to Rs. 3 lakhs in the new tax regime.

• Tax Rebate: A tax rebate has been introduced under Section 87A for income up to Rs. 7 lakhs, which was previously set at Rs. 5 lakhs in the old income tax regime.

• Standard Deduction in New Tax Regime:

  • For Salaried Income: In the new tax regime, the standard deduction of Rs. 75,000 remains applicable. This means that regardless of your income, you can subtract Rs. 75,000 from your gross salary before calculating the taxable income.

  • For Family Pension: The deduction for family pension has been increased to Rs. 15,000 or 1/3rd of the pension (whichever is lower). This benefit is provided to you if you receive a family pension from the government or a private organisation.

• Surcharge Reduction for High Net-worth Individuals (HNIs): The surcharge rate on income exceeding Rs. 5 crores has been reduced from 37% in the old tax regime slabs to 25% in the new tax regime slabs. This reduction will lower the effective tax rate for High Net-worth Individuals (HNIs) from 42.74% to 39%.

• Higher Leave Encashment Exemption: Non-government employees can now enjoy a higher exemption limit for leave encashment. The leave encashment limit increased from Rs. 3 lakhs in the income tax old regime to Rs. 25 lakhs in the new regime.

• No LTCG Benefit: The income tax slab new regime does not provide Long-Term Capital Gains (LTCG) benefits on debt funds invested after 31 March 2023.

About the Old Tax Regime

The old tax regime was in place before the introduction of the new tax regime in the Union Budget 2023. It has five old tax slab rates that range between 0% to 30%.

In this regime, the initial tax exemption limit for you is Rs. 2.5 lakhs, with an additional standard deduction of Rs. 50,000.

Key Features of the Old Tax Regime:

1. Old Regime Tax Slabs:

   The income tax old regime provides 5 tax slabs with old tax slab rates ranging from 0 to 30% p.a.

   The following table shows the income tax slabs in India for the old regime:

   Old Tax Regime Slabs  (Rs. in lakhs)	Old Regime Tax Slab Rates  (in % p.a.)
   0 – Rs. 2.5 lakhs	Nil
   Rs. 2.5 lakhs – Rs. 5 lakhs	5% (Rebate u/ Section 87A is available)
   Rs. 5 lakhs – Rs. 7.5 lakhs	20%
   Rs. 7.5 lakhs – Rs. 10 lakhs	20%
   Rs. 10 lakhs – Rs. 12.5 lakhs	30%
   Rs. 12.5 lakhs – Rs. 15 lakhs	30%
   Rs. 15 lakhs & above	30%

2. More Tax Deductions and Exemptions:

   Under the old tax regime, you have access to over 70 exemptions and deductions, including Section 80C, Section 10(10D), HRA and LTA. This enables you to lower your taxable income and reduce your tax obligations.

3. LTCG Benefits:

   The old tax slab regime provides Long-Term Capital Gains (LTCG) benefits on your investments in debt funds.

Some of the most common exemptions and deductions under the income tax old regime are mentioned below:

• Section 80C: Allows for a deduction of up to Rs. 1.5 lakhs on investments made in various savings schemes, such as ULIP, EPF, PPF, and ELSS.

• Section 80D: Allows for a deduction of up to Rs. 50,000 on medical expenses incurred for self, spouse, parents, and children.

• Section 80 TTB: Allows for a deduction of up to Rs. 10,000 on interest income from savings accounts and post office deposits.

• House Rent Allowance (HRA): Allows for a deduction of the actual amount of HRA received or 50% of the basic salary, whichever is lower.

• Leave Travel Allowance (LTA): Allows for a deduction of the actual amount of LTA received or 40% of the basic salary, whichever is lower.

• Tax Rebate: You can get a tax rebate on income of up to Rs. 5 lakhs under Section 87A.

• Standard Deduction: Salaried individuals can avail of tax deductions of up to Rs. 50,000.

Old vs New Tax Regime in FY 2024-25 (AY 2025-26)

Deciding between the new tax regime vs the old one depends on a comparative analysis of the overall benefits from different tax slab rates and deductions available for you under both tax regimes. 

To make it easier, we have compared old and new tax regimes based on various parameters in the following sections.

Income Tax Slab for Old Regime vs New Tax Regime

Surcharge Rates for Old vs New Tax Regime (FY 2023-24)

Deductions/ Exemptions under Old vs New Tax Regime (AY 2024-25)

The tax deductions and exemptions under the old regime and new tax regime for FY 2023-24 are as follows:

Which one is Better: The Old vs New Tax Regime?

In an old vs new tax regime comparison, you may find the old regime advantageous if you are eligible for deductions and exemptions. However, the new tax system in India provides reduced rates for individuals earning up to Rs. 15 lakhs annually. 

1. Advantages of Income Tax Old Regime:

   • Lower tax liability: For high earners with substantial deductions, the overall tax burden can be lower.

   • Investment benefits: Encourages long-term investments through tax-saving options.

   • Higher returns: Allows earning income from investments while claiming tax deductions on them.

2. Advantages of the New Regime:

   • Lower tax rates: Offers simplified tax slabs with lower rates for lower-income earners (up to 7 lakhs).

   • Ease of compliance: No need to maintain investment proofs or claim deductions, making filing simpler.

   • Increased disposable income: More take-home pay due to lower tax rates.

   Comparison: Old vs New Tax Regime

   1. Old Tax Regime

      • Promotes savings and investment. 

      • It not only saves your income tax liability but helps you grow your corpus in the long term through tax-saving investments. 

      • The old income tax regime provides dual benefits of investments along with tax benefits.

   2. New Tax Regime

      • It promotes consumer behaviour, where your investments reduce and expendable income increases. 

      • It simplifies the tax structure to bring more taxpayers into its pivot.

      To determine which tax system is preferable for you, let us have a look at the examples of two individuals.

Illustration of the Old vs New Tax Regime Comparison

Let us assume the following details of income and investments for two individuals:

Old vs New Tax Regime - Which is the Better Tax Regime for Taxpayer X?

Old vs new tax regime - which is the better tax regime for Taxpayer Y?

How to Decide Between the Old and New Tax Regimes?

To determine the best tax regime for you, you must take into account factors like annual income, investment goals, family status, and risk tolerance. 

Consider the following observations before making a choice between the old vs new tax regime for FY 2023-24: 

• The new income tax slab benefits you more if you are a middle-class taxpayer with an income of up to Rs. 15 lakhs.

  • For instance, if your income before deductions is up to Rs 12 lakh and your investments are less than Rs 1.91 lakh, the new regime can save you more on taxes.

• If you have invested in tax-saving instruments, medical claims, life insurance, education expenses, or home loan EMIs, the old regime provides more deductions and lower taxes.

• The old tax regime slabs suit high-income earners above Rs. 15 lakhs who make more investments.

• The new regime is advantageous if you make minimal investments and can claim deductions under Rs. 1.5 lakhs annually. This is because of the lower tax slab rates in this tax regime.

• The old tax regime is more beneficial if your annual deductions are higher than Rs. 3.75 lakhs.

• If your annual deductions stand between Rs. 1.5 lakhs to Rs. 3.75 lakhs, then the right choice of tax regime depends on your income level.

Therefore, to choose between the old and new regimes, you should compare and analyse both, as the best option varies from person to person.

Old vs New Tax Regime Calculator

The Policybazaar Income Tax Calculator is an online tool that helps you compare your tax liability under the old regime and the new income tax regimes. This allows you to assess the financial implications of choosing between the two tax regimes. 

The Old vs. New Tax Regime Calculator is a fast, easy and hassle-free tool that simply considers the following factors for the calculations:

• Your Income

• Eligible Deductions

• Tax Exemptions 

The calculator will then calculate your tax liability under the old tax regime and new tax regime and will help you learn which regime is better for you. Ultimately, this enables you to improve your financial planning and tax optimisation.

When Can You Choose - An Old or New Tax Regime?

Conclusion

Neither the old nor new tax regime is universally better for anyone in the financial year 2024-25. Choosing the ideal one depends on your income, investments, and deductions you avail. The new tax regime lowers the tax rates for most income brackets. There is no need to manage deductions, leading to simpler income tax e-filing. The new tax regime also provides for a higher tax-free limit of Rs. 7 lakhs from Rs. 5 lakhs in the income tax old regime. However, the biggest con of the new income tax regime is that it takes away most of the deductions like Section 80C, 10(10D), HRA, LTA, and more, which were earlier available with old tax regime slabs. This leads to higher taxes for incomes above Rs. 15 lakhs.

Selecting the old tax regime can increase your savings with various tax exemptions and deductions under the Income Tax Act, 1961. The old income tax slab regime emphasises savings and investment, which lowers your income tax and boosts your long-term wealth growth through tax-saving investments. Hence, the old income tax regime offers a double advantage by encouraging both investments and tax benefits. However, you have to be mindful of the drawbacks, such as increased paperwork and a lower tax-free limit.