Difference between Old & New Tax Regime

India introduced a new tax regime in the Union Budget 2020 as an alternative to the existing tax system. Now, taxpayers can choose between two tax regimes: the old and the new. The old tax regime offers the benefit of various deductions and exemptions, such as those for housing loans, insurance premiums, and investments in tax-saving instruments, which can significantly reduce taxable income. In contrast, the new tax regime offers lower tax rates but does not allow most of these exemptions and deductions. This simplified system aims to reduce the complexity of tax filings. The choice between the two depends on individual financial circumstances. For your ease, we have jot down a detailed comparison of new tax regime vs old to help you understand the differences: 

1. Tax Slab Rates (FY 2024-25)

Old Tax Regime:

• Offers a progressive tax rate structure with slabs ranging from 0% to 30%.
• Allows for basic exemption limit up to Rs 2.5 lakh.
• Higher exemption and rebate limits for senior citizens.

New Tax Regime:

• Also features a progressive tax structure but with lower rates and more slabs, ranging from 5% to 30%.
• The tax exemption limit has been increased to up to Rs. 3 lakhs.
• Does not offer different rates for senior citizens.

Note: The new tax regime offers simplified tax brackets but does not allow for most deductions and exemptions.

2. Deductions and Exemptions

Old Tax Regime:

• Allows numerous deductions and exemptions under various sections of the Income Tax Act, like 80C (investments), 80D (medical insurance), house rent allowance, home loan interest, etc. 
• More beneficial for those who have substantial investments, children's education expenses, home loans, or high medical insurance premiums.

New Tax Regime:

• Offers simplified tax structure with reduced rates but does not allow most of the deductions and exemptions available under the old regime.
• May benefit those who do not invest much in tax-saving schemes or those who do not have significant deductible expenses.

3. Applicability

Old Tax Regime:

• Continues to be available for all taxpayers.
• Offers more flexibility for optimizing tax through various exemptions and deductions.

New Tax Regime:

• Optional and can be chosen at the beginning of the fiscal year; however, business owners who choose the new regime cannot switch back to the old.
• Salaried individuals and those with income from other sources can switch between the regimes each year.

4. Suitability

Old Tax Regime:

• More suitable for individuals who can avail themselves of various deductions and exemptions to reduce their taxable income significantly

New Tax Regime:

• More suited for individuals who prefer a lower tax rate and do not want to deal with the hassle of investments and managing deductions just for the tax benefits.

5. Tax Planning

Old Tax Regime:

• Requires careful tax planning to maximize deductions and reduce tax liability.

New Tax Regime:

• Requires minimal tax planning since most deductions are not applicable, simplifying the filing process.

Which Is Better: New Or Old Tax Regime For Salaried Employees?

Considerations for Salaried Employees

1. Evaluate Your Deductions: Calculate how much you typically save using deductions under the old regime. If your deductions significantly lower your taxable income, the old regime might be more beneficial.
2. Assess Your Financial Goals: If you are not heavily invested in tax-saving instruments and prefer simplicity, the new regime may be more suitable.
3. Calculate Tax Liability for Both Regimes: Use online calculators or consult with a financial advisor to see which regime offers you the lower tax liability based on your current financial situation and planned investments.

Here’s a clearer and more concise explanation of the income tax slabs for senior citizens and super senior citizens in India for the Financial Year 2023-24, under the old tax regime. The new tax regime, introduced in the Finance Act, 2020, offers concessional tax rates but does not apply to non-resident senior citizens who follow the regular tax provisions.

Income Tax Slab for Senior Citizens (Aged 60 years and above)

Old Tax Regime:

• Up to ₹3,00,000: No tax
• ₹3,00,001 to ₹5,00,000: 5% of the income exceeding ₹3,00,000
• ₹5,00,001 to ₹10,00,000: ₹10,000 + 20% of the income exceeding ₹5,00,000
• Above ₹10,00,000: ₹1,10,000 + 30% of the income exceeding ₹10,00,000

Income Tax Slab for Super Senior Citizens (Aged 80 years and above)

Old Tax Regime:

• Up to ₹5,00,000: No tax
• ₹5,00,001 to ₹10,00,000: 20% of the income exceeding ₹5,00,000
• Above ₹10,00,000: ₹1,00,000 + 30% of the income exceeding ₹10,00,000

Additional Charges:

• Health and Education Cess: All tax calculations include a 4% cess.
• Surcharge Rates: Depend on total income:
  • Above ₹50 Lakhs: 10%
  • Above ₹1 Crore: 15%
  • Above ₹2 Crore: 25%
  • Above ₹5 Crore: 37%

Senior and super senior citizens can choose between the old and new tax regimes, with the old regime allowing more extensive exemptions and deductions.

There isn't a one-size-fits-all answer. Salaried individuals who maximize their deductions and exemptions might find the old regime more tax-efficient. In contrast, those with minimal tax-saving investments or who prefer simplicity might benefit from the lower tax rates of the new regime. It is often advisable to consult with a tax professional to make a well-informed decision based on your specific circumstances.

FAQ about Old vs New Tax Regime