In Union budget 2023, the Union government has implemented a new tax structure under section 115BAC which has revamped the income tax provisions as well as simplified the income tax slabs and rates.
Initially the new tax regime was introduced in FY 2020-21, the Union government has introduced the new regime with reduced tax rates for individual taxpayers and HUF (Hindu undivided families) and in 2023 budget FY 2023 24, the new tax regime which has been introduced in 2020 has been declared as default tax provision.
Individuals can also continue with the old regime subject to condition, they have to intimate their choice before the starting of financial year. If not conveyed within the same time frame, then, the tax will be calculated as per the new tax regime.
However, with the new tax regime which is implemented in FY 2023 24, there are certain exceptions like, it does not have much provision for deductions like the old regime.
The old regime have deductions under section 80 C, 80D, HRA, LTA, etc, but the new tax regime is deprived of it. So, it is essential for salaried individuals to understand each tax regime throughly and choose in accordance to their suitability in which they will be beneficial.
We have you covered with the details on each tax regime the old and new tax regimes with a comprehensive comparison ( old vs new tax regime) on which is better. So, lets get started with understanding income tax return and how it is calculated.
What is Income Tax, and How is it calculated?
The income tax is the tax levied on individuals, businesses and entities by the government on their income. There are various provisions of tax and in every new budget, the ruling government decides on the tax regimes which include the tax slabs, deductions, and exemptions associated with the taxation amount of the taxpayers.
There are various types of income tax systems, a few of them are namely:
a) Progressive Tax System: When the income increases, the tax rate increases in progressive tax system.
b) Flat Tax System: In this a single tax is applied to all income groups. It is adverse for the low-earning individuals and advantageous for the high-earning ones as the income tax percentages stay stagnant.
c) Regressive Tax System: In this the tax rates decrease when the income increases. This implies that lower-earning employees pay more than the higher-earning ones. It is a burden to the lower-earning groups.
Not all incomes are taxable and as per the Income Tax Act 1961, here is the list of incomes that are taxable in India:
- Salary income
- Income from house property
- Profits or gains in business
- Capital gains
- Income from other sources such as lotteries, gifts, annuity income, dividend income, rental income from plant, machinery or furniture, etc.
Example:
Now that we have a fair insight into the meaning of income tax let us understand the way to calculate the income tax as per the Income Tax Act, 1961 with a suitable example.
Let us consider a hypothesis in which Mr. X is earning an income of ₹15,00,000 p.a so, the tax amount calculated as per the new tax regime slab will be:
For the first 3 lakhs out of 15,00,000, the amount is exempted to be evaluated as the tax slab from 0-3,00,000 is 0 percent=0. The income up to ₹,3,00,000 is exempted from tax calculation.
Then from the second slab, for ₹3,00,000, we have to calculate from 3,00,001-6,00,000 slab, the amount to be calculated will be 3,00,000×5/100= 15,000
So out of ₹15,00,000, we have calculated the tax for ₹6,00,001 Now, for the new tax slab that is 6,00,001-9,00,000 the amount to be calculated will be, 6,00,001x10/100= ₹60,000
so out of ₹15,00,000 we have calculated tax for ₹12,00,000 and the last ₹3,00,000 we have to consider the next tax slab (9,00,001-12,00,000) percent, that is 3,00,000×15/100= ₹45,000
So, the total taxable amount for ₹.15,00,000 lakhs will be somewhere around ₹. 15,000+60,000+45,000= ₹1,20,000 (Excluding deductions and exemptions).
If any exemptions and deductions are included in the provision then it has to be deducted from this amount of ₹.1,20,000.
Note-Always consider the lower limit of the tax slab for calculation as spotted in the example above and not the upper limit. Like for ₹15,00,000, we have considered 3,00,000 from the 3,00,000-6,00,001 slab, and 6,00,000 from the 6,00,000-9,00,000 slab etc.
Note: This example is based on the new income tax slabs and new tax regimes.
The New Tax Regime vs Old Tax Regime (Comparison):
With so much of tax speculations on tax liability, new tax regime, old tax regime and so, it becomes obvious for an individual to get confused and articulate the real fact on which tax regime will be beneficial for his/her income amount.
So, we got you a comprehensive comparison between the new vs old tax regime, which will help you to understand both the tax regimes and to compare and contemplate on which one will be beneficial for your income parameter.
We will give you a detailing on almost every aspect of taxation under the old regime as well as the new regime for the financial year(FY) 2024-25.
The new vs old tax regime has significant differences which we will cover in this part of the blog let us start with a detailed analysis of the old regime or old tax regime:
What is Old Tax Regime?
The old tax regime which was prevalent before the introduction of the new tax regime has the following administrations and provisions for the tax regime.
The old regime has had a wide range of deductions and exemptions under section 80c and is different in tax slab segmentations.
Let us understand each of them in details:
Income Tax Slab under Old Regime
The tax slab under the old tax regime which is prevalent is as follows:
| Income Range(in RS) | Income Tax Rate (%) |
| 1) 0- 2,50,000 |
0 |
| 2) 2,50,001- 5,00,000 |
5 |
| 3) 5,00,001- 10,00,000 |
20 |
| 4) 10,00,000 and Above |
30 |
This is income tax slab under old tax regime.
Surcharge under the Old Tax Regime
Surcharge refers to the tax paid by individuals earning higher income
The surcharge rate under the old regime is as follows:
| Income (In INR)(in RS) | Surcharge rate Under Old Regime (%) |
| 1) Less Than 50 Lakhs |
NIL |
| 2) Above 50 Lakhs and less than 1 crore |
10% |
| 3) Above 1 Crore & less than 2 Crore |
15% |
| 4) Above 2 Crore & Less than 5 Crore |
25% |
| 5) Above 5 Crore |
37% |
Exemptions and Deductions under the Old Tax Regime
There are more tha 70 deductions and exemptions in the old tax regime for HRA and LTA. The deductions and exemptions in the old tax regime are as follows:
Deductions:
- HRA (House Rent Allowance)
- LTA (Leave Travel Allowances)
- A standard deduction of ₹50,000 for the salaried personnel
- Deduction (Tax saving deductions such as) 80C, 80D, 0E, 80CCD, 80CCC, 80EE, 80DDB, 80DD, 80EEA, 80EEB, 80G, 80GG, 80GGa, 80GGC, 80IA, 80IB, 80IAB, 80IAC, etc.
Note: Deduction under section 80 CCD(2) [Employers contribution to NPS] and 80JJA [Employers who generate employment in the formal sector] likewise are also provided in the new regime.
- Family Pension under section 57, clause (ii a)- permitted deduction amount ₹15,000
- Interest paid on home loans and self-occupied or vacant property under section 24
- Entertainment allowance deduction for government employees
- Deductions under section 80TTA and 80TTB on interest on savings account deposits.
Exemptions:
- Death cum retirement Benefit
- Standard deduction on rent
- Agricultural Income
- Life Insurance Income
- Scholarship for Education
- Retrenchment compensations
- Voluntary retirement scheme proceeds up to ₹5 lakhs., etc.
What is the New Tax Regime FY 2024-2025?
The Union Government in the recent budget release 2023 has released and implemented the new tax regime FY 2024-25 under section 115 BAC which mandated reduced tax rates etc. Let us understand in details:
Income Tax Slab under the New Tax Regime
The income tax slabs under the new tax regime are as follows:
| Income Range (In ₹) | Income Tax Rates (%) |
| 1) 0-3,00,000 |
0 |
| 2) 3,00,001-6,00,000 |
5 |
| 3) 6,00,001-9,00,000 |
10 |
| 4) 9,00,001-12,00,000 |
15 |
| 5) 12,00,001-15,00,000 |
20 |
| 6) 15,00,001 and above |
30 |
Surcharge under New Tax Regime
The surchage rate as per the new regime is as follows:
| Income (In INR)(in RS) | Surcharge rate Under Old Regime (%) |
| 1) Less Than 50 Lakhs |
NIL |
| 2) Above 50 Lakhs and less than 1 crore |
5% |
| 3) Above 1 Crore & less than 2 Crore |
10% |
| 4) Above 2 Crore & Less than 5 Crore |
25% |
| 5) Above 5 Crore |
25% |
Deductions and Exemptions under the New Tax Regime:
The deductions and expemption under the new tax regime includes the following:
Deductions:
- Standard deduction of rs 50,000 under section 80TTB
- For those reciving family pensions are eligible for deduction of ₹15,000 or 1/3rd of the pension amount whichever is lower.
- Deductions on deposits in Agniveer Corpus Fund under section 80CCH(2)
- Under Section 80CCD(2), employers contributions to employees NPS accounts
- Additional employee cost ( under section 80 JJA)
Exemptions:
- Leave encashment exemption limit for non-government employees has increased from 3 lakhs to 25 lakhs.
- Under section 10 (10C) exemptions for voluntary retirement schemes.
- Gifts upto ₹5,000
- Travel/tour compensation
- Pre requisites for official works
- Gratuity amount under section 10(10)
Which is better the old tax regime or the new tax regime?
Both old and new tax regimes are beneficial in a certain way or in certain parameters. For example the income of individuals, the deductions and exemptions an individual is availing and etc.
So, let us understand which tax regime (old vs new tax regime) is beneficial for which parameters.
New Tax Regime is Beneficial For:
- Deductions under 1.5 lakhs or less than the new regime are beneficial for salaried individuals.
- No deductions or exemptions, then the new tax regime is your savior as it has lower rates of tax.
- When your income is ₹50,00,000 or more, the new regime is beneficial for you as it will help you save up to rs. 5,25,000(without deductions) which in the old regime is more even after deductions.\
- High-earning individuals with an income of more than ₹5 crores, the new regime is extremely beneficial as the surcharge tax rate is 25% in the new regime whereas in the old regime, it is 37% which is 12% higher than that of the new regime.
- Income level of ₹7,00,000 with a standard deduction of rs 50,000- new tax regime is more beneficial.
Old Tax Regime is Beneficial For:
- Individuals having deductions amounting to more than ₹3,75,000
- More investments or loans: Settle for the old regime as it will benefit you with multiple provisions on exemptions and deductions.
- Individuals who have HRA, LTA, etc.
Surcharge rates (Old vs New Tax Regime):
| Income (In INR) New Regime | Old Regime Surcharge Rate | New Regime |
| 1) Less Than 50 Lakhs |
NIL |
NIL |
| 2) Above 50 Lakhs and less than 1 crore |
10% |
10% |
| 3) Above 1 Crore & less than 2 Crore |
15% |
15% |
| 4) Above 2 Crore & Less than 5 Crore |
25% |
25% |
| 5) Above 5 Crore |
37% |
25% |
The surcharge is levied on high-income groups of individuals and the new tax regime is more beneficial for high-earning groups as they can save up to 12% tax on the income of ₹.50,000,000 or more.
So, high-earning individuals with an income of ₹50,000,000 or more should go for the new tax regime as it will benefit them substantially.
Frequently Asked Questions (FAQs):
Can I switch between the old and new tax regime?
Yes, as per the current provision for taxation, you can switch from the old and new tax regime and vice versa depending on your choice, subject to a condition: you have to inform your employer about your tax regime before tax calculation at the start of the financial year, so your income tax shall be calculated as per your regime that you have selected (old or new).
Note- Evaluate all the pros and cons of both the old vs new tax regime and then decide on which one would serve your income the best.
Which tax regime is better for 7 lakhs?
For an annual income of 7 lakhs, the new tax regime is beneficial unless you have investments, home loans, allowances, and other provisions that are subject to deductions.
As per the new tax regime, there is almost an exemption up to ₹.7,00,000.
For example: To calculate ₹7,00,000 under the new tax regime, the income tax slab from ₹ 0-3,00,000 is 0 percent taxable which exempts your 3,00,000 lakhs from 7 lakhs, and from 3,00,000 to 6,00,000 slab you have to pay 5 percent tax on 3 lakhs which makes around ₹.15,000 and within the slab of 6,00,001 to 9,00,000 you have to pay 10 percent tax on rs.1,00,000 which makes around ₹. 10,000.
So, the total taxable amount for ₹. 7,00,000 is 15,000+10,000= ₹.25,000
But again as per the new tax regime, individuals can get a rebate up to ₹. 25,000 making incomes up to ₹.7,00,000 tax-free.
Which tax regime is better for a 10 lakhs salary?
If you have investments, loans, and others then it is better to choose the old tax regime for taxation as it has the provision for multiple deductions and exemptions which will help you save tax as the new tax regime does not allow many deductions.
Whereas with an income of ₹10,00,000 and no investments or loans it is beneficial to choose the new tax regime as it will reduce the taxation amount.
Which tax regime is better for a 12 lakhs salary?
For an income of ₹12 lakhs, the taxable amount in the old tax regime would be ₹.1,72,500.05(excluding deductions) whereas as per the new tax regime, the taxable amount for income of 12 lakhs will be somewhere around ₹. 75,000 (exclusive of deductions).
So, it is better to choose the new tax regime when you have no investments or loans for an income of ₹. 12,00,000. Whereas, in case you have loans and investments, and your deductions are equal to or more than ₹3,12,500 then the old tax regime will be beneficial for an income of ₹12 lakhs.
Which tax regime is better for 15 lakhs salary?
If you have investments and loans then for a salary income of ₹15 lakhs, the old tax regime is beneficial. For the new tax regime which has income tax slabs of variations, it is beneficial for individuals having no or fewer investments as it does not have many provisions for deductions and exemptions.
The old tax regime has provisions for exemptions and deductions which makes it beneficial for individuals with multiple investments in gold, assets, etc. So if your deductions amount to more than ₹3,58,000 then go for the old regime.
The difference between old and new tax regime is significant and requires a comprehensive analysis before settling for either.
Which tax regime is better for 20 lakhs salary?
With investments and loans, you can avail the benefits from the old tax regime and if you don’t have investments or loans then the new tax regime will be beneficial for the income of 20 lakhs.
If your deductions amount to more than ₹.3,75,000, then prefer going with the old regime as it will benefit you.
Which tax regime is better for 25 lakhs salary?
The new tax regime taxation slabs reduce the taxation amount so it is beneficial for individuals earning 25 lakhs but if you have investments then it is better to go for the old tax regime as it has major provisions on exemptions and deductions.
If you have deductions amounting to more than ₹3,75,000 then settle for the old regime.
Which tax regime is better for a 30 lakhs salary?
For an income up to ₹30,00,000, the new tax regime will be beneficial for you unless your tax deductions amount is more than or equal to ₹. 3,75,000. In case your deductions and exemptions amount exceeds ₹.3,75,000, you should opt for the old tax regime.
Otherwise, if it amounts to less than ₹.3,75,000, opt for the new tax regime as you have to pay less tax as compared to the old tax regime.
Which tax regime is better for a 50 lakhs salary?
The new tax regime is a better option for individuals earning more than ₹50,00,000 as the tax rates are less in the new regime than the old regime and can make you save up to ₹.5,25,000 even without claiming any deductions.
As in the new regime, you have to pay ₹. 12,50,000 as tax for an income of ₹15,00,000, whereas in the old tax regime, you have to pay ₹.17,75,000 after deductions of a minimum ₹. 3,75,000
The difference between the old and new tax regimes after deductions will be around ₹,5,25,000 so you can save up to Rs 5,25,000 with the new tax regime.
This signifies that you can save up to ₹.5,25,000 in the new tax regime even without any significant deductions and exemptions, whereas, in the old tax regime, you will have to pay ₹5,25,000 more even after significant deductions of a minimum ₹3,75,000. So, the income group of ₹50 lakhs should prefer the new tax regime.
What deductions are allowed in the new tax regime?
The deductions in the new income tax regime includes:
- Standard deduction of rs 50,000 under section 80TTB
- For those reciving family pensions are eligible for deduction of ₹15,000 or 1/3rd of the pension amount whichever is lower.
- Deductions on deposits in Agniveer Corpus Fund under section 80CCH(2)
- Under Section 80CCD(2), employers contributions to employees NPS accounts
- Additional employee cost ( under section 80 JJA)
Is HRA exemption available in the new tax regime?
No, the house rate allowance (HRA) is not exempted in the new tax regime. So, in order to avail the same you have to stick to the old tax regime and inform your employer about the same, so your taxation of financial year 2024-2025 will be accessed in accordance to the old tax regime in the upcoming assessment year 2024-25.
Is the new tax regime better for salaried employees?
Yes, the new tax regime is beneficial for salaried employees with no investments or allowances as the new tax regime doesn’t have many provisions on exemptions and deductions. Whereas, employees having investments, loans etc. should opt for the old tax regime to avail the benefits and exemptions in the old tax regime.
Can I claim 80C in the new tax regime?
No, section 80C deductions are not applicable in the new tax regime, so, in case you want to avail to the benefits in section 80C, you have to stick to your old tax regime and inform your employer regarding the same as without informing, your income tax will be calculated in the new regime.
