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

Taxpayers are faced with significant confusion after the Budget 2023 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 2024. 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 introduced in the Budget 2020 underwent a few changes, with the offer of concessional tax rates indicating the changing of the existing tax slabs. Nevertheless, people opting for the new tax regime cannot claim the LTA, HRA, 80C, 80D, and others, which are part of deductions and exemptions. This is the reason why the new tax regime was not popular in India. There are generally 5 pivotal changes that occurred in the Budget 2023. They were kept similar for the FY 2024-2025 as well, promoting the taxpayers in the adoption of the new tax system.  

Now let’s discuss the important changes in the new tax regime, which occurred in the Budget 2023 for FY 2023-2024 -

• Higher Tax Rebate Limit
  It was announced that a full tax rebate will be implemented on an income up to ₹7 lakhs. Under the old tax regime, the full tax rebate was present for income up to ₹5 lakhs. Thus, taxpayers with income up to ₹7 lakhs need not pay any tax under the new tax regime.
   
• Streamlined Tax Slabs
  The new tax regime has increased the exemption limit from ₹2.5 lakhs to ₹3 lakhs.
   
• Salary Income
  The new tax regime will also have a standard deduction of ₹50,000, the same as the old tax regime. This, along with your rebate, makes for ₹7.5 lakhs tax-free income.
   
• Family Pension
  Under the new tax regime, people receiving family pensions will receive a deduction of 1/3rd of their pension or ₹15,000, depending upon the lowest amount.
   
• High Leave Encashment Exemption
  For non-government employees, their exemption limit has been increased to ₹25 lakhs from ₹3 lakhs, which is an 8-fold increase.
   
• Reduction In The Surcharge For High-Net-Worth Individuals
  An income over ₹5 crores will have reduced surcharge to 25% from 37%. The tax rate has been reduced to 39% from 42.74%.
   
• Default Regimen
  The new tax regimen will act as the default option from FY 2023-24. However, you need to submit the form during return filing if you wish to use the old regime. All taxpayers will also be provided with the opportunity to switch between the new and old regimes annually.
   

Now, let us understand the income slabs with their respective income tax rates in the table provided below.

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 ₹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 having income up to ₹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 ₹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

Certain calculations are important to understand for deciding between the old vs new tax regime. 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 ₹1.5 lakhs.
• The old regime will be more advantageous when your total deductions are more than ₹3.75 lakhs.
• Lastly, you can choose the tax regime based on your income level when your total deductions are between ₹1.5 lakhs and ₹3.75 lakhs.

Let’s look at an example below to understand it further.
 

Old vs New Regime Example

The table below will identify the tax calculation for an individual with an income of ₹8,00,000.

However, we need to be aware of the different exemptions that have been introduced in the new tax regime.
 

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 ₹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 to determine the net taxable income 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.
   

How To Calculate Income Tax From Income Tax Slabs?

We will now calculate the income tax from the income tax slabs by looking at an example of a person named Ishan. His total taxable income is ₹8,00,000. His rental income, salary and interest income have been included, which allowed for calculating his total taxable income. Moreover, his deduction has also been reduced under section 80. Now, Ishan is in a dilemma and wants to determine his tax dues for FY 2022-2023 (AY 2023-2024). So, let’s calculate Ishan’s tax dues from the income tax slabs.

From the above calculations, it can be determined that Ishan has an income tax exemption of ₹2,50,000 as he is an individual taxpayer. This amount further increases for senior citizens and super senior citizens as they have an income tax exemption of ₹3,00,000 and ₹5,00,000, respectively.

Now, let us dive into some of the crucial elements to consider after selecting the new tax regime. 
 

Important Points To Note If You Select The New Tax Regime

Let’s look at a few important points below which will provide you with more clarity regarding the new tax regime:

• Senior citizens, individuals, as well as super senior citizens have similar tax rates according to the new tax regime.
• Tax rebate u/s 87A will be applicable for individuals whose net taxable income is up to ₹5 lakh. This rebate determines tax liability, which would be NIL in both old and new tax regimes.
• People with income till ₹7 lakh need not pay taxes from FY 2023-2024. The new tax regime increased the rebate during the Budget 2023.
• The concept of surcharge will become applicable only when the income of the taxpayers exceeds a certain limit. The charges for the surcharge have been provided below.
  • If the total income transcends ₹50 lakh, the surcharge will be 10% of the income tax.
  • If the total income surpasses ₹1 crore, the surcharge will be 15% of the income tax.
  • If the total income increases to more than ₹2 crore, the surcharge will be 25% of the income tax.
  • If the total income increases the threshold of ₹5 crore, 37% of the income tax will act as the surcharge.
• It is important to note that from 1st April 2023, the surcharge of 37% has been lowered to 25% in the Budget 2023.
• Taxable incomes under sections 111A (Short Term Capital Gain on Shares), 112A (Long Term Capital Gain on Shares), and 115AD (Tax on Income of Foreign Institutional Investors) will not include any surcharge rates of both 25% and 37%. This ensures that the highest surcharge rate is 15% on tax payables.
•  Section 112 mentions the highest surcharge rates for both capital gain and dividend income in tax payable. This rate is 15% according to the assessment year 2023-2024. The Association of Persons (AOP), which is comprised entirely of companies, also has a 15% surcharge rate.
• An additional 4% health and education cess will be levied on the income tax liability and surcharge in all instances.
   

Conditions For Opting New Tax Regime

As taxpayers, you need to remain aware of certain conditions while you are opting for the new tax regime. There are few exemptions and deductions that are available in the old tax regime. When a taxpayer opts for the new tax regime for concessional rates, they need to waive those exemptions and deductions. The table below lists all the important 70 deductions and exemptions that are currently present in the new tax regime.

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 your tax regimen from 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.
     

Income Tax Rate For Domestic Companies – FY 2022-23

Let’s plunge into the income tax rates for domestic companies of India in FY 2022-2023.

Let’s look at a few additional points regarding the income tax rates of domestic companies. The percentage of surcharge for these domestic companies has been provided below -

• If the total income exceeds ₹1 crore, 7% of Income tax will be charged.
• Where the total income is more than ₹10 crore, 12% of Income tax will be charged.
• For Domestic companies which 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 ₹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.
 

FAQs

1. Which is better: old vs new tax regime?
   You should check your expenses and tax-saving investments before choosing between the new or old tax regime. It might be a better choice to stick with the old regime if you have more than ₹3,58,000 in tax savings investments. Conversely, if your tax-saving investments are less than ₹3,58,000, you might benefit more from the new tax regime.
    
2. Are there any deductions in the new tax regime?
   Salaried individuals can receive the benefits of standard deductions of ₹50,000 under the new tax regime. Following the Income Tax Act 1961, this benefit can be availed under Section 80TTB deduction. Moreover, the new tax regime indicates that family pensioners will be able to claim a deduction of ₹15,000.
    
3. Which tax regime is better for ₹10 lakhs salary?
   The old tax regimen will only assist you in an improved manner if you have ensured tax savings investments for more than ₹2,62,500. If your deductions are less than this amount, you will be better off with the new regime.
    
4. Which tax regime is better for ₹12 lakhs salary?
   If your investment is more than ₹3,00,000 in tax saving schemes, you will benefit from the old tax regime. However, if you have invested less than this amount, the new regime will be a better option.
    
5. Which tax regime is better for ₹15 lakhs salary?
   If your tax-saving investments are greater than ₹3,58,000, the old regime will be more advantageous, whereas if your tax savings are less than the provided amount, the new regime will be a better choice.
    
6. Which tax regime is better for ₹20 lakhs salary?
   The old regime will benefit you more if your tax savings are more than ₹3,75,000. Otherwise, you will benefit more from the new regime.
    
7. Which tax regime is better for ₹25 lakhs salary?
   If your tax savings investments are less than Rs 3,75,000, choose the old regime. Contrary, choose the new regime if your tax-saving investments are less than the mentioned amount.
    
8. Which tax regime is better for ₹30 lakhs salary?
   If your tax deductions are less than ₹3,75,000, choose the new regimen. Otherwise, opt for the old tax regime.
    
9. Which tax regime is better for ₹50 lakhs salary?
   Opt for the new tax regime if your tax saving deductions are less than ₹3,75,000. Otherwise, choose the old tax regime.