New or Old Regime for Financial Year 2023-2024 (Assessment Year 2024-25)

 

The Union Budget 2023 introduced the optional new tax slab rates u/s 115BAC of the Income Tax Act. Since then, there has been confusion looming about choosing between the old and new regimes. Reviewing the two can help you decide.

Understanding the New Tax Regime

The new tax regime has lower tax rates, a higher rebate slab of Rs. 7 Lakhs, and a maximum surcharge of 25%. However, it does not offer the 70-odd deductions of the old tax regime. Here are some of the common deductions excluded from the new regime:

• HRA (House Rent Allowance)
• LTA (Leave Travel Allowance)
• Children education allowance
• Deductions u/s 80(C)/80(D)/80E/80EEB
• Interest paid on home loans u/s 24(b) (for self-occupied properties)

Comparing Old and New Regime Slab Rates for Assessment Year 2024-25

Here’s a comparison between the old and new tax regimes to give you a quick run-through of the different applicable tax rates.

Income Tax Slab	Old Regime	New Regime
Up to Rs. 2.50 Lakhs	Nil	Nil
Rs. 2.50 Lakhs-Rs. 3 Lakhs	5% (100% rebate u/s 87A)	Nil
Rs. 3 Lakhs-Rs. 5 Lakhs	5% (100% rebate u/s 87A)	5% (100% rebate u/s 87A)
Rs. 5 Lakhs-Rs.6 Lakhs	20%	5% (100% rebate u/s 87A)
Rs. 6 Lakhs-Rs. 7.50 Lakhs	20%	10% (100% rebate u/s 87A)
Rs. 7.50 Lakhs-Rs. 9 Lakhs	20%	10%
Rs. 9 Lakhs-Rs. 10 Lakhs	20%	15%
Rs. 10 Lakhs-Rs. 12 Lakhs	30%	15%
Rs. 12 Lakhs-Rs. 12.50 Lakhs	30%	20%
Rs. 12.50 Lakhs-Rs. 15 Lakhs	30%	20%
Above Rs. 15 Lakhs	30%	30%

Who Should Opt for the New Tax Regime?

• If you are a middle-income earner, earning an annual income of up to Rs. 15 Lakhs.
• If you don’t have significant tax-saving investments like pension, retirement, or ULIP plans.

Who Should Opt for the Old Tax Regime?

• The old regime is a better option if you have a wealth-creation plan with investments in ULIP plans or other tax-saving instruments.
• According to experts, the old regime is better suited if you’ve invested more than Rs. 3 Lakhs in the best tax-saving investment options.
• The old regime might be the better option if you are eligible for deductions/exemptions like HRA, LTA, and others.

When Can I Make the Choice?

Here’s when you can make a choice:

• The new regime is a default regime. Hence you have to have to choose to opt for old regime.
• If you’re an employee with a salary income that attracts TDS, you can switch regimes at the beginning of the fiscal year after intimating your employer.
• If you are a professional or have business income, you can only make a choice once to switch to new tax regime. After you’ve selected new tax regime, you cannot change it in subsequent financial years. However, you have only once in a lifetime option for switching back to the old regime if the circumstances changes. Once you switch back to the old regime, you won’t be able to choose a new regime anytime in future.

Conclusion

In a nutshell, the new regime can benefit low- and middle-income individuals with its lower tax slabs and rates. However, if you don't want to miss out on salary exemptions, the old regime may be a better option. Moreover, you can always offset higher rates of the old regime by investing in term insurance or the best pension plans in India.

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ARN-  INT/ED/08/23/3878