Old Tax vs New Tax Regime

With the introduction of the new tax regime in India, taxpayers now have the flexibility to choose between two systems of taxation: the old tax regime and the new tax regime. Both systems have their unique features, benefits, and limitations. This blog post will help you understand the key differences, tax slabs, and deductions available under both regimes.

Tax Slabs

Old Tax Regime

Income Slabs	Tax Rate
Up to ₹2,50,000	NIL
₹2,50,001 to ₹5,00,000	5%
₹5,00,001 to ₹10,00,000	20%
Above ₹10,00,000	30%

New Tax Regime for FY2024-25

Income Slabs	Tax Rate
Up to ₹3,00,000	NIL
₹3,00,001 to ₹7,00,000	5%
₹7,00,001 to ₹10,00,000	10%
₹10,00,001 to ₹12,00,000	15%
₹12,00,001 to ₹15,00,000	20%
Above ₹15,00,000	30%

New Tax Regime for FY2025-26

Income Slabs	Tax Rate
Up to ₹4,00,000	NIL
₹4,00,001 to ₹8,00,000	5%
₹8,00,001 to ₹12,00,000	10%
₹12,00,001 to ₹16,00,000	15%
₹16,00,001 to ₹20,00,000	20%
₹20,00,001 to ₹24,00,000	25%
Above ₹24,00,001	30%

Deductions and Exemptions

Old Tax Regime

The old tax regime allows taxpayers to claim various deductions and exemptions, including:

• Section 80C: Deductions up to ₹1,50,000 for investments in instruments like PPF, EPF, ELSS, etc.
• Section 80D: Deductions for health insurance premiums (up to ₹25,000 for self and family, ₹50,000 for senior citizens).
• House Rent Allowance (HRA): Exemption based on rent paid.
• Standard Deduction: ₹50,000 for salaried employees.
• Section 87A Rebate: Taxpayers with income up to ₹5,00,000 are eligible for a full rebate.
• Section 24(b): Deduction of up to ₹2,00,000 on home loan interest.
• Other sections: 80E (education loan), 80G (donations), etc.

New Tax Regime

The new tax regime simplifies taxation by reducing tax rates but removes most deductions and exemptions. However, a few benefits are available:

• Standard Deduction: ₹75,000 for salaried employees (introduced in Budget 2024-2025).
• Section 87A Rebate: Taxpayers with income up to ₹7,00,000 are eligible for a full rebate.

Note: The new tax regime is beneficial for those who do not claim significant deductions or exemptions, while the old tax regime is suitable for taxpayers who make use of the various deductions available.

Choosing the Right Tax Regime

The choice between the old and new tax regimes depends on your income, investments, and expenses. Here's a quick summary:

• Opt for the old tax regime if you have significant deductions under sections like 80C, 80D, and others.
• Choose the new tax regime for lower tax rates and simplified compliance if you have minimal deductions.

Conclusion

Both tax regimes have their advantages. It's important to calculate your tax liability under both systems and choose the one that minimizes your tax outgo. With the flexibility to switch regimes every financial year, taxpayers can evaluate and adapt based on their financial situation.

Below is a Tax Calculator which shows the tax payable according to Old Tax Regime and New Tax Regime. You are required to input your Gross Annual Income, sum of deductions that you can avail (excluding the standard deduction) and it will give the tax payable accordingly.

Tax Calculator

Enter Your Annual Income (₹):

Are you a salaried employee? Yes No

Section 80CCE (Total deduction under Section 80C, 80CCC, 80CCD(1)) ⓘ

Section 80CCD(1B) (Investments in NPS (outside Rs 1,50,000 limit under Section 80CCE)) ⓘ

Section 80TTA (Interest on Savings Account) ⓘ

Section 80D (Health Insurance Premiums) ⓘ

House Rent Allowance (HRA) ⓘ

Section 24B (Home Loan Interest) ⓘ

Any other deductions (old tax regime) ⓘ

Any deductions claimable (new tax regime) ⓘ

Frequently Asked Questions (FAQs)

1. What is the difference between the old and new tax regimes? ▼

The old tax regime allows for various deductions and exemptions, such as Section 80C, 80D, HRA, etc., while the new tax regime offers lower tax rates but removes most deductions and exemptions.

2. Can I switch between the old and new tax regimes every year? ▼

Yes, taxpayers can switch between the old and new tax regimes every financial year based on their financial situation.

3. Which tax regime is better for me? ▼

If you have significant deductions (e.g., under Section 80C, 80D, HRA, etc.), the old tax regime may be better. If you have minimal deductions, the new tax regime with lower tax rates might be more beneficial. You can check your tax liability using tax calculator provided in this post.

4. Is the standard deduction available in both regimes? ▼

Yes, the standard deduction is available in both regimes. However, the amount differs: ₹50,000 in the old regime and ₹75,000 in the new regime (from FY 2024-25).

5. Is the New Tax Regime mandatory? ▼

No, the New Tax Regime is optional. However, starting from FY 2023-24, it is the default tax regime. You can opt for the Old Tax Regime while filing your Income Tax Return (ITR).

6. Is Section 87A rebate available under both tax regimes? ▼

Yes, the Section 87A rebate is available under both the Old and New Tax Regimes. It allows individuals with taxable income up to ₹7 lakh (for FY 2024-25), ₹12 lakh (for FY 2025-26) under New Tax Regime and ₹5 lakh (under Old Tax Regime) to get a full tax rebate, effectively making their tax liability zero.

7. What is marginal relief under Section 87A? ▼

Marginal relief under Section 87A applies only to the New Tax Regime. If a taxpayer's taxable income slightly exceeds ₹7 lakh (for FY 2024-25), ₹12 lakh (for FY 2025-26), this relief ensures that the additional tax payable does not exceed the extra income above the threshold.

For example, if your taxable income is ₹7,01,000, as per New Tax Regime (FY 2024-25) your tax would be ₹20,100. For an increase of ₹1,000 above the limit, there is tax liability of ₹20,100. As it is unfair, marginal relief is provided under Section 87A which states that tax payable is minimum value of the tax liability and excess income over the limit. In this case minimum of ₹20,100 and ₹1000 is ₹1000, so the tax payable is ₹1000.