Old Vs New Tax Regime FY 2023-24 (AY 2024-25): Which is Better?

Taxpayers are faced with significant confusion after the Budget 2024 due to the differences in the old vs new tax regime schemes. There are important advantages and disadvantages of both schemes, which need to be effectively weighed before opting for one. The old tax regime is seen to be more beneficial for a certain group of taxpayers, whereas others may receive more benefits from the new tax regime. Thus, it is crucial to evaluate both regimes and find the best fit for you in 2025. The article determines how you can calculate the best option from your income tax slabs.

So, let’s dive in!
 

What Is An Income Tax Slab?

The concept of the Income Tax Slab determines how individuals are subjected to different tax rates based on their income in India. The tax rate of people increases with their respective income. India facilitated this tax system to facilitate an impartial and progressive procedure. These income tax slabs are revised at fixed intervals, especially during budgeting. Based on the income of the taxpayers, they are provided with distinct income tax slab rates. 
 

New Tax Regime

The new tax regime proposed in the 2020 Budget underwent a few changes, with the offer of concessional tax rates indicating the changing of the existing tax slabs. However, those who choose the new tax system are unable to claim the LTA, HRA, 80C, 80D, and other exemptions and deductions.  

Now let’s discuss the important changes in the new tax regime, which occurred in the Budget 2024 -

The Union Budget 2024-25 introduces a series of impactful changes aimed at improving India’s financial ecosystem. From revised tax slabs, exemptions for salaried employees and pensioners, and increased deductions to the abolition of the angel tax, these measures are set to drive economic growth, streamline the tax system, and support innovation across various sectors.

Now, are you excited to find out how the new tax breaks could benefit you? Uncover the latest updates that could reshape your tax experience!

Benefits For Salaried Employees And Pensioners

With the latest Union Budget for 2024-25, there's some good news for salaried folks. They've tweaked the tax rules a bit, which could save you up to Rs 17,500 on your income tax. It’s pretty clear that this change is aimed at giving middle-income earners a break, making things a little easier on the wallet. Plus, it’s likely to encourage more people to stay on the right side of the taxman, given that it eases the financial pinch quite a bit.

Besides making the tax system simpler, these changes are really about giving salaried folks and pensioners some breathing room. The idea is to leave more money in their pockets, which not only helps them out personally but also boosts the overall economy.

They’re also shaking things up to clear out some of the tax-related headaches. Now, if the taxman thinks you missed out on declaring some big income—like more than Rs 50 lakh—they can go back and check your old returns for up to five years. And if there was a search involved, they’ve cut the window for reopening assessments down to six years instead of the old ten-year stretch. It’s all about keeping things fair without dragging out the process forever.

The 2024-25 Budget has rolled out some pretty big updates to the income tax rules, especially for those who are salaried or living on a pension. Let’s look at it below-

• Standard Deduction: For those who choose the new tax regime, salaried employees will now enjoy a higher standard deduction, boosted from Rs 50,000 to Rs 75,000.
• Family Pension Deduction: Pensioners will see an increase in their benefits, too, with the deduction for family pensions rising from Rs 15,000 to Rs 25,000.

Now, let’s look at the revised tax slab below for easier understanding -

 

Elimination Of The Angel Tax

Basically, under Section 56(2)(viib) of the Income Tax Act, known as "angel tax," startups—basically, companies that aren't listed on the stock market—had to pay tax on the money they got from angel investors. This rule was set up by the Finance Act of 2012.

In the Union Budget for 2024-25, Union Minister for Finance and Corporate Affairs, Smt. Nirmala Sitharaman revealed that the angel tax is getting scrapped for all investors. This change is all about giving the Indian startup scene a boost, encouraging more entrepreneurial ventures, and backing innovation.

By scrapping this tax, the government’s goal is to lighten the load for startups so they can really focus on growing and developing. This change should bring in more investment from both local and international sources, making the startup scene in India even more exciting and energetic. It’s a clear sign that the government is dedicated to boosting the startup world and backing innovation-driven businesses.

Taxation Of Capital Gains

The Union Budget for 2024-25 brings some significant updates to capital gains taxes, aiming to streamline the system and ease the tax load. Those in the lower and middle-income groups will particularly benefit from these adjustments, which are intended to make things more equitable and less stressful.

Short-Term Capital Gains

The 15% tax rate on short-term capital gains on particular financial assets has been raised to 20%. Meanwhile, taxes on other types of financial and non-financial assets will stay unchanged, maintaining a steady approach across the tax system.

Long-Term Capital Gains

Long-term capital gains on both financial and non-financial assets will now be taxed at a lower rate of 12.5%. Plus, starting from FY 2024-25, the exemption limit for capital gains on some financial assets is getting a boost from Rs 1 lakh to Rs 1.25 lakh per year.

Long-term capital gains on all assets will now be taxed at a clean 12.5% without indexation (thanks to Section 112). That’s a drop from the old 20% with indexation. The idea is to make things less complicated and a lot easier when you’re figuring out your taxes.
 

Old Tax Regime

We will now dive into the old tax regime, existing before the new tax regime was introduced. The old tax regime was different from a few aspects of the new tax regime. A total of 70 deductions and exemptions are present in the old regime that included both LTA and HRA. The factors are known to minimize both lower tax payments as well as your taxable income.

One of the critical aspects of the old tax regimen is that under Section 80C, the taxable income can be reduced to Rs 1.5 lakh. This is one of the most popular elements and even provides taxpayers with the freedom to navigate between the new and old tax regimes.

Let us check out the income tax slabs of the old tax regime for people below the age of 60 years and HUF.

Senior citizens with incomes up to Rs 3 lakhs are exempted from paying taxes. Now, let’s check out the income tax slab for people between 60-80 years old.

Senior citizens above 80 years of age have an income tax exemption limit of Rs 5 lakh.

Let’s check the income tax slabs for senior citizens above 80 years old.

Difference Between Old Vs New Tax Regime: Which Is Better?

Taxpayers need clarity to decide between the old and new tax regimes. Based on the deductions and exemptions of the tax savings in the old tax regime, it will be determined whether you need to integrate the new tax regime or remain in the old tax regime. Below 60 years of age, the breakeven points of a salaried individual will help in determining the exact regimen to choose from. The breakeven points have been calculated for different income levels of the taxpayers, which have been provided below.
 

The Breakeven Threshold For Deciding Between New Vs Old Tax Regimes

There should not be any tax liability difference between the old vs new tax regimes, which provides the basis for the breakeven point. Generally, it might be helpful for you to stay in your old tax regime if both total eligible exemptions and deductions of the old tax regime are more than your income level’s breakeven threshold. On the contrary, you can move to the new tax regime if your breakeven threshold is greater.

Now, let’s calculate the taxes under old and new regimes to understand it further.

Tax Under Old Vs New Regime

Deciding between the new and old tax regimes isn't a simple task—there’s no universal answer. To make the best choice, you’ll need to compare the tax savings, deductions, and exemptions each option offers. Ultimately, the correct decision will depend on which regime gives you the most financial advantage based on your personal situation.

Curious about how the old and new tax regimes stack up? Dive into this example to see how your tax bill could shift and what it means for your take-home pay!

Old Vs New Regime Example

Let’s break down how the tax bite differs between the old and new tax regimes using an example. Imagine someone with a salary of Rs 7,75,000. Here’s how their taxes stack up under each regime -

Some Estimates: Old Regime vs New Regime

Certain calculations are important to understand when you’re deciding between the old and new tax regimes. Let’s discuss them below to assist you in choosing between old vs new tax regimes.

• The new regime will be more beneficial when your total deductions are less than Rs 1.5 lakhs.
• The old regime will be more advantageous when your total deductions are more than Rs 3.75 lakhs.
• Lastly, you can choose the tax regime based on your income level when your total deductions are between Rs 1.5 lakhs and Rs 3.75 lakhs.
   

List Of Significant Exemptions Enclosed In The New Tax Regime

The new tax regimen contains substantial exemptions, which have been provided below.

• Income from agriculture.
• Life insurance income.
• A standard deduction imposed on rent.
• Retrenchment compensation.
• Proceedings up to Rs 5 lakhs on VRS.
• Retirement leave encashment.
• Retirement and death benefits.
• Educational scholarships and others.
   

How To Choose Between Old And New Tax Regimes?

There are certain elements, which need to be decided before choosing between the old vs new tax regimens. Some of these have been provided below.

• Tax Deductions And Exemptions: Always make sure to include both tax exemptions and deductions in the old tax regime, which will aid in deciding which tax regime is better for you.
• Net Taxable Income: Ensure that the net taxable income is determined by deducting all the eligible deductions and exemptions. You will be able to determine the net taxable income by comparing it with the tax liability of the new tax regime with the tax liability of the old tax regime.
• Tax Deducted At Source (TDS): It is always pivotal to inform the employer about the choice of Tax Deducted at Source (TDS) from the salary. It is only reasonable to move forward with the regime providing you with lower tax liability.

Important Points To Note If You Pick The New Tax Regime

Here are two crucial points you need to remember if you go for the new tax regime-

1. Under the new tax regime, everyone, whether you're a senior or a super senior citizen, faces the same tax rates.
2. If someone's net taxable income is Rs 7 lakh or below, they’re eligible for a tax rebate under Section 87A. This rebate can reduce their tax bill to zero.

Conditions For Opting  the New Tax Regime

Choosing the New Tax Regime means giving up some of the exemptions and deductions that come with the old tax system. Here are some of the common deductions and exemptions which are not allowed under the new tax regime-

• Leave Travel Allowance (LTA)
• Conveyance Allowance
• House Rent Allowance (HRA)
• Relocation Allowance
• Children Education Allowance
• Standard deduction on salary
• Profession Tax
• Daily expenses in the course of employment
• Deductions under Chapter VI-A (eg.80C, 80D, 80E), except for Section 80CCD(2)
• Helper Allowance
• Interest on housing loan (Section 24)
• Other Special Allowance (Section 10(14))
   

When Can I Opt For The Old Vs New Regime?

Here are some of the options that will help you determine when you can opt for both old and new tax regimes. Make sure to decide on your tax regimen based on the below mentioned information.

• If the main income is from your salary or other source of income that draws TDS:
  • All employees are provided with the option to select from the new tax regime at the start of the financial year. They should also inform their employer as it cannot be changed at a later date. Nonetheless, employees have the option to modify it when they will be filling their Income Tax Returns.
• On the other hand, if your income is from any profession or business,
  • You will only get the option to choose the tax regimes only once in your lifetime.

Baffled by the tax regime changes for companies? Get the lowdown on what’s new and what’s old in this concise overview!

Income Tax Rate For Domestic Companies – FY 2023-24

Here's a quick overview of the tax rates under both regimes -

However, note that a 4% Health and Education Cess will be applied to the income tax liability in all cases, enhancing contributions towards these critical sectors. The updated surcharge rates for companies are outlined below -

• If the total income exceeds Rs 1 crore, 7% of Income tax will be charged.
• Where the total income is more than Rs 10 crore, 12% of Income tax will be charged.
• For Domestic companies that have selected sections 115BAA and 115BAB, 10% of income tax will be charged.
   

Income Tax Rate For Partnership Firm Or LLP As Per Old/ New Regime

According to the old vs new tax regimen, the income tax rate for any partnership firm and Llp is bound to 30% taxation.

Moreover, we need to be aware of a few factors, such as

• For income more than Rs 1 crore, a total of 12% surcharge is levied.
• 4% Health and Education Cess will be integrated.
• The new tax regimes do not contain any concessional rates for firms' LLPs.
   

Wrapping Up!

Deciding between the old and new tax regimes can be a very tedious task. Both the tax regimes have their own benefits and drawbacks. The new tax regime might be simpler and safer for you. On the other hand, the old tax regime might be better for savings. Thus, a thorough comparison is needed, especially by looking at the deductions and exemptions of each regime. Choose the regime that will make you feel secure as well as promote your long-term progress.

Disclaimer

The content on this page is generic and shared only for informative and explanatory purposes. It is sourced from multiple online resources and may be subject to change. Kindly seek advice from an expert before making any decisions related to the discussed subject matter.
 

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