The Budget 2023 caused a lot of confusion among taxpayers regarding the choice between the old and new tax regimes. The government introduced various incentives in the 2023 Budget and 2024 Budget to encourage the adoption of the new regime.
These changes show that the government intends to have taxpayers transition to the new regime and eventually phase out the old one. Though the new regime is now the default tax regime, the old tax regime will continue to exist.
New Tax Regime
A new tax regime was introduced in Budget 2020 wherein the tax slabs were altered, and taxpayers were offered concessional tax rates. However, those who opt for the new regime cannot claim several exemptions and deductions, such as HRA, LTA, 80C, 80D , and more. Because of this, the new tax regime did not have many takers. The government in the Budget 2023 introduced 5 key changes, which remain the same even for FY 2024-2025 since no changes were made in the Interim Budget 2024, to encourage taxpayers to adopt the new regime. They are:
- Higher Tax Rebate Limit: Full tax rebate on an income up to ₹7 lakhs has been introduced. Whereas this threshold is ₹5 lakhs under the old tax regime. This means that taxpayers with an income of up to ₹7 lakhs will not have to pay any tax at all under the new tax regime!
- Streamlined Tax Slabs: The tax exemption limit has been increased to ₹3 lakhs, and the new tax slabs are:
Tax Slab for FY 2023-24 | Tax Rate | Tax Slab for FY 2024-25 | Tax Rate |
Upto ₹ 3 lakh | Nil | Upto ₹ 3 lakh | Nil |
₹ 3 lakh – ₹ 6 lakh | 5% | ₹ 3 lakh – ₹ 7 lakh | 5% |
₹ 6 lakh – ₹ 9 lakh | 10% | ₹ 7 lakh – ₹ 10 lakh | 10% |
₹ 9 lakh – ₹ 12 lakh | 15% | ₹ 10 lakh – ₹ 12 lakh | 15% |
₹ 12 lakh – ₹ 15 lakh | 20% | ₹ 12 lakh – ₹ 15 lakh | 20% |
More than 15 lakh | 30% | More than 15 lakh | 30% |
- The tax rates under both regimes are compared as below:
| Old Tax Regime (FY 2022-23, FY 2023-24 and FY 2024-25) | New Tax Regime | ||||
Income Slabs | Age < 60 years & NRIs | Age of 60 Years to 80 years | Age above 80 Years | FY 2022-23 | FY 2023-24 | FY 2024-25 |
Up to ₹2,50,000 | NIL | NIL | NIL | NIL | NIL | NIL |
₹2,50,001 – ₹3,00,000 | 5% | NIL | NIL | 5% | NIL | NIL |
₹3,00,001 – ₹5,00,000 | 5% | 5% | NIL | 5% | 5% | 5% |
₹5,00,001 – ₹6,00,000 | 20% | 20% | 20% | 10% | 5% | 5% |
₹6,00,001 – ₹7,00,000 | 20% | 20% | 20% | 10% | 10% | 5% |
₹7,00,001 – ₹7,50,000 | 20% | 20% | 20% | 10% | 10% | 10% |
₹7,50,001 – ₹9,00,000 | 20% | 20% | 20% | 15% | 10% | 10% |
₹9,00,001 – ₹10,00,000 | 20% | 20% | 20% | 15% | 15% | 10% |
₹10,00,001 – ₹12,00,000 | 30% | 30% | 30% | 20% | 15% | 15% |
₹12,00,001 – ₹12,50,000 | 30% | 30% | 30% | 20% | 20% | 20% |
₹12,50,001 – ₹15,00,000 | 30% | 30% | 30% | 25% | 20% | 20% |
₹15,00,000 and above | 30% | 30% | 30% | 30% | 30% | 30% |
- Salary income: The standard deduction of ₹50,000, which was only available under the old regime, has now been extended to the new tax regime as well. This amount has been increased to ₹75,000 for the new regime only with effect from FY 2024-25.
- Family pension: Those receiving a family pension can claim a deduction of ₹15,000 or 1/3rd of the pension, whichever is lower. This amount has been increased to ₹25,000 for the new regime with effect from FY 2024-25.
- Reduced Surcharge for High Net Worth Individuals: The surcharge rate on income over ₹5 crores has been reduced from 37% to 25%. This move will bring down their effective tax rate from 42.74% to 39%.
- Higher Leave Encashment Exemption: The exemption limit for non-government employees has been raised from ₹3 lakhs to ₹25 lakhs, an 8-fold increase.
- Default Regime: Starting from FY 2023-24, the new income tax regime will be set as the default option. If you want to continue using the old regime, you must submit the income tax return along with Form 10-IEA before the due date. You will have the option to switch between the two regimes annually to check the tax benefits.
Old Tax Regime
The old regime is the tax system that prevailed before the introduction of the new regime. Under this regime, there are over 70 exemptions and deductions available, including HRA and LTA, that can reduce your taxable income and lower tax payments. The most popular and generous deduction isSection 80C, which allows for a reduction of taxable income up to Rs.1.5 lakh. The taxpayers are given a choice between the old and the new tax regime.
Budget 2024 Updates
Financial Minister Nirmala Sitharaman has proposed changes in the tax structure under the new tax regime. The new tax regime has been updated as follows –
Comparison of pre-budget and post-budget tax slab
Tax Slab for FY 2023-24 | Tax Rate | Tax Slab for FY 2024-25 | Tax Rate |
Upto ₹ 3 lakh | Nil | Upto ₹ 3 lakh | Nil |
₹ 3 lakh – ₹ 6 lakh | 5% | ₹ 3 lakh – ₹ 7 lakh | 5% |
₹ 6 lakh – ₹ 9 lakh | 10% | ₹ 7 lakh – ₹ 10 lakh | 10% |
₹ 9 lakh – ₹ 12 lakh | 15% | ₹ 10 lakh – ₹ 12 lakh | 15% |
₹ 12 lakh – ₹ 15 lakh | 20% | ₹ 12 lakh – ₹ 15 lakh | 20% |
More than 15 lakh | 30% | More than 15 lakh | 30% |
Budget 2024 has increased the standard deduction under the new tax regime to ₹ 75,000. The family pension deduction has also been increased from ₹ 15,000 to ₹ 25,000. With the revised tax structure the taxpayer will save ₹17,500.
Difference Between Old Vs New Tax Regime: Which is Better for FY 2023-24?
The decision to switch to the new or remain in the old tax regime or which regime is better for you shall be based on the tax savings deductions and exemptions you are eligible for in the old tax regime. To make it easier, we have calculated a breakeven point for various income levels (refer to the table below) for a salaried individual below 60 years of age. This can be used to determine which regime to choose.
What Deductions and Exemptions are Allowed Under the New Tax Regime?
Particulars | Old Tax Regime | New tax Regime | New Tax Regime | New Tax Regime
|
Income level for rebate eligibility | ₹ 5 lakhs | ₹ 5 lakhs | ₹ 7 lakhs | ₹ 7 lakhs |
Standard Deduction | ₹ 50,000 | – | ₹ 50,000 | ₹ 75,000 |
Effective Tax-Free Salary income | ₹ 5.5 lakhs | ₹ 5 lakhs | ₹ 7.5 lakhs | ₹ 7.75 lakhs |
Rebate u/s 87A | ₹12,500 | ₹12,500 | ₹25,000 | ₹25,000 |
HRA Exemption | ✓ | X | X | X |
Leave Travel Allowance (LTA) | ✓ | X | X | X |
Other allowances including food allowance of Rs 50/meal subject to 2 meals a day | ✓ | X | X | X |
Standard Deduction | ✓ | X | ✓ | ✓ |
Entertainment Allowance and Professional Tax | ✓ | X | X | X |
Perquisites for official purposes | ✓ | ✓ | ✓ | ✓ |
Interest on Home Loan u/s 24b on: Self-occupied or vacant property | ✓ | X | X | X |
Interest on Home Loan u/s 24b on: Let-out property | ✓ | ✓ | ✓ | ✓ |
Deduction u/s 80C (EPF | LIC | ELSS | PPF | FD | Children’s tuition fee etc) | ✓ | X | X | X |
Employee’s (own) contribution to NPS | ✓ | X | X | X |
Employer’s contribution to NPS | ✓ | ✓ | ✓ | ✓ |
Medical insurance premium – 80D | ✓ | X | X | X |
Disabled Individual – 80U | ✓ | X | X | X |
Interest on education loan – 80E | ✓ | X | X | X |
Interest on Electric vehicle loan – 80EEB | ✓ | X | X | X |
Donation to Political party/trust etc – 80G | ✓ | X | X | X |
Savings Bank Interest u/s 80TTA and 80TTB | ✓ | X | X | X |
Other Chapter VI-A deductions | ✓ | X | X | X |
All contributions to Agniveer Corpus Fund – 80CCH | ✓ | Did not exist | ✓ | ✓ |
Deduction on Family Pension Income | ✓ | X | ✓ | ✓ |
Gifts upto Rs 50,000 | ✓ | ✓ | ✓ | ✓ |
Exemption on voluntary retirement 10(10C) | ✓ | ✓ | ✓ | ✓ |
Exemption on gratuity u/s 10(10) | ✓ | ✓ | ✓ | ✓ |
Exemption on Leave encashment u/s 10(10AA) | ✓ | ✓ | ✓ | ✓ |
Daily Allowance | ✓ | ✓ | ✓ | ✓ |
Conveyance Allowance | ✓ | ✓ | ✓ | ✓ |
Transport Allowance for a specially-abled person | ✓ | ✓ | ✓ | ✓ |
FAQs
What is ITR-1 (Sahaj)?
ITR-1 (Sahaj) is a simple Income Tax Return form for individuals who have income from salary, pension, one house property, other sources (like interest income), and agricultural income (up to ₹5,000). It is meant for taxpayers with a total income of up to ₹50 lakh.
What is the difference between the old and new tax regimes?
The old tax regime allows for various deductions and exemptions, such as those under Section 80C (for investments), HRA (House Rent Allowance), and standard deductions. In contrast, the new tax regime offers lower tax rates but removes most exemptions and deductions, simplifying the tax calculation process.