Navigating tax regimes can be daunting, especially with the recent changes introduced in the 2023 and 2024 Budgets. The government has made efforts to simplify tax filing and encourage taxpayers to switch to the new tax regime. Here’s a simplified comparison to help you decide which tax regime—old or new—is better for you as a salaried employee in FY 2024-25.
What Changed in the New Tax Regime?
The new tax regime, introduced in Budget 2020, initially offered lower tax rates but did away with many exemptions and deductions. The Budget 2023 and Budget 2024 introduced several updates to make the new regime more attractive. Key changes include:
- Increased Standard Deduction: The standard deduction has been raised from ₹50,000 to ₹75,000.
- Higher Family Pension Deduction: The deduction for family pensions has increased from ₹15,000 to ₹25,000.
- Revised Tax Slabs: Tax slabs have been updated to make the regime more beneficial. Here’s a quick comparison of the tax slabs for FY 2023-24 and FY 2024-25:
| Income Slab | Tax Rate (FY 2023-24) | Tax Rate (FY 2024-25) |
|---|---|---|
| Up to ₹3 lakh | Nil | Nil |
| ₹3 lakh – ₹6 lakh | 5% | 5% |
| ₹6 lakh – ₹9 lakh | 10% | 10% |
| ₹9 lakh – ₹12 lakh | 15% | 15% |
| ₹12 lakh – ₹15 lakh | 20% | 20% |
| Above ₹15 lakh | 30% | 30% |
Key Features of the New Tax Regime
- Tax Rebate: Full rebate on income up to ₹7 lakhs, compared to ₹5 lakhs under the old regime.
- Reduced Surcharge: For high earners, the surcharge rate has been cut from 37% to 25%.
- Higher Leave Encashment Exemption: The exemption for leave encashment has been significantly increased for non-government employees.
Old Tax Regime Overview
The old tax regime offers numerous exemptions and deductions, which can significantly reduce taxable income. These include:
- HRA (House Rent Allowance)
- LTA (Leave Travel Allowance)
- Deductions under Sections 80C, 80D, 80E, etc.
For many, the ability to claim these exemptions might make the old regime more beneficial.
Which Regime Is Better for You?
The decision largely depends on your eligibility for deductions and exemptions. Here’s a quick guide based on the breakeven point:
- Total Deductions ≤ ₹1.5 lakhs: New tax regime is typically better.
- Total Deductions ≥ ₹3.75 lakhs: Old tax regime is usually more advantageous.
- Total Deductions between ₹1.5 lakhs and ₹3.75 lakhs: Compare the tax liability under both regimes to decide.
Example Calculations
Here’s how the tax liability compares under different income levels for FY 2023-24 and FY 2024-25:
| Income Level | Tax Under Old Regime | Tax Under New Regime | Breakeven Deductions Required for Old Regime |
|---|---|---|---|
| ₹7,00,000 | ₹0 | ₹0 | ₹1,50,000 |
| ₹8,00,000 | ₹36,400 | ₹36,400 | ₹1,38,500 |
| ₹9,00,000 | ₹41,600 | ₹41,600 | ₹2,12,500 |
| ₹10,00,000 | ₹54,600 | ₹54,600 | ₹2,50,000 |
| ₹12,50,000 | ₹93,600 | ₹93,600 | ₹3,12,500 |
| ₹15,00,000 | ₹1,45,600 | ₹1,45,600 | ₹3,58,000 |
Conclusion
Choosing between the old and new tax regimes depends on your individual financial situation. The new regime simplifies tax filing with fewer exemptions and deductions, making it ideal for those with fewer personal deductions. The old regime, on the other hand, might offer better tax savings if you have substantial deductions.