Old vs New Tax Regime: A Detailed Comparison

The Indian tax system underwent a significant overhaul with the introduction of the new tax regime in the Union Budget 2020. Taxpayers now have the option to choose between the old and new tax regimes based on their financial situations and tax-saving preferences. This article offers a detailed comparison of the old vs new tax regime, highlighting the benefits and drawbacks of each to help you make an informed decision. Tools like the old vs new tax regime calculator can further aid in this process.

Introduction to old vs new tax regime

In an effort to simplify the tax system, the Government of India introduced a new tax regime with the Finance Act 2020. This new regime offers lower tax rates but eliminates most deductions and exemptions available under the old regime. Taxpayers now have the flexibility to choose annually between the old regime and the new regime, based on which is more beneficial for them.

Key differences between old and new tax regimes

1. The old tax regime

The old tax regime is the traditional method of taxation in India, which includes various exemptions and deductions. Key features include:

• Standard deduction: Salaried individuals can claim a standard deduction.
• House Rent Allowance (HRA): HRA can be partially or fully exempt based on actual rent paid.
• Section 80C deductions: Investments in instruments like PPF, EPF, NSC, ELSS, and premiums for life insurance policies are deductible up to Rs. 1.5 lakh.
• Section 24(b) Deductions: Interest on home loans can be deducted up to Rs. 2 lakh.
• Additional deductions: Other sections like 80D (health insurance premiums), 80E (education loan interest), and 80G (donations) allow for further tax savings.

2. The New Tax Regime

The new tax regime, introduced as an alternative, offers lower tax rates but does away with most exemptions and deductions. Key features include:

• Simplified slabs: Tax rates are lower, but there are no major deductions available.
• Choice eligibility: Taxpayers can choose between the new and old regimes each financial year (for those with no business income).
  

Maximize your tax savings with an income tax calculator

Follow these steps to use an online tax calculator:

1. Enter basic details: Select the financial year for which you wish to calculate your income tax from the dropdown menu. Then, input basic details such as your age group, city of residence, income source, type of house, and rent.
2. Provide income details: Carefully enter your income information, including your basic salary and income from other sources such as rental income, savings interest, and interest on deposits.
3. Add your exemptions: Include details of all your exemptions, such as dearness allowance (DA), HRA, special allowance, and EPF contributions.
4. Enter your capital gains: Provide information about all your capital gains earned in the financial year from the sale of equity investments, debt investments, unlisted shares, and real estate.
5. Add the deductions: Input details of all your tax-saving instruments (such as term insurance premiums, PPF, health insurance premiums, ELSS, and donations to charities) applicable under Sections 80C, 80D, 80G, 80E, 80TTA, etc. Additionally, include amounts paid as education loan interest, Home Loan interest on rented property, and Home Loan interest for self-occupied property.
6. View the results: Click the ‘Continue’ button to view your total taxable income and the total tax payable under your chosen income tax regime.

Tax slabs under the old and new tax regimes

Here is a detailed comparison of the two tax regimes and their respective income tax slab rates as outlined in the latest Union Budget for FY 2024-25:

Income tax slabs for people aged between 60 and 80 years (FY 2024-25)

Benefits and drawbacks of each tax regime

Old tax regime

Benefits:

• Multiple deductions and exemptions reduce taxable income.
• Suitable for taxpayers with high investments in tax-saving instruments.

Drawbacks:

• Complex and requires meticulous tax planning.
• Higher tax rates without deductions and exemptions.

New tax regime

Benefits:

• Simpler with lower tax rates.
• Easier compliance and reduced paperwork.

Drawbacks:

• No deductions or exemptions, potentially higher taxable income.
• Not beneficial for those with significant investments in tax-saving instruments.
  

What are the deductions and exemptions in each regime?

Old tax regime

• Section 80C: Deductions up to ₹1.5 lakh for investments in PPF, EPF, NSC, etc.
• Section 80D: Deductions for medical insurance premiums.
• HRA: Exemption for House Rent Allowance.
• LTA: Exemption for Leave Travel Allowance.

New tax regime

• No major deductions or exemptions except for the employer’s contribution to NPS, EPF, and the interest on home loan under certain conditions.
  

When should you choose the old vs new tax regime?

• Old tax regime: Best suited for individuals who have significant investments in tax-saving instruments and can maximise deductions and exemptions.
• New tax regime: Ideal for those looking for simplicity and lower tax rates without the need for extensive tax planning and documentation.

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