New Tax Regime vs Old Tax Regime: Which one is better in 2024?

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New Tax Regime vs Old Tax Regime: Which one is better in 2024?

Registrationwala

Under the Indian income tax system, taxes are levied on the taxpayers based on their income level. However, from 2020, there has been a change in the method of levying taxes since the announcement of a new tax regime by the Indian government. The new tax regime significantly reduced the tax rates but also drastically reduced the tax-saving opportunities. In the 2023 budget, the government incorporated many incentives to show its support for the implementation of the new tax system. 

In this article, we will discuss the differences between the old tax regime as well as the new tax regime and the differences in the deductions which are available. If you often wonder, old tax regime vs new tax regime: which one is better in 2024? Continue reading this article.

New Tax Regime

Starting April 1, 2020, GOI implemented a new optional tax rate system for the individuals and HUFs. Accordingly, Section 114 BAC was included in the Income Tax Act, 1961 for mandating lower tax rates for respective taxpayers and HUFs which didn’t claim certain tax exemptions or deductions. As per the Union Budget 2023’s revisions, the new tax regime is considered to be the default tax regime. 

 

Taxpayers must opt for the old tax regime if they want to use it. However, individuals that opt for the new tax regime cannot claim various exemptions and deductions which includes HRA, LTA, 80C, 80D and more. Due to this, the new tax regime has received limited support from the individuals. This is why, in Budget 2023, GOI announced 5 major adjustments to convince the taxpayers to accept the new tax regime. They are mentioned below:

 

Old Tax Regime

The old tax regime was the tax system that existed before the new tax regime was implemented. The old tax regime has approx. 70 exclusions and deductions such as HRA and LTA, which can significantly reduce your taxable income and reduce the payment of taxes to the government. 

 

Section 80C is the most basic and crucial deduction which enables a reduction in the taxable income of up to Rs. 1.5 lakh. In addition to this, the taxpayers are provided with the choice to opt for the existing tax regimes or the new tax regimes.

List of some Exemptions and Deductions as per the Old Tax Regime Slabs

Here is a list of ‘some’ of the exemptions and deductions as per the Old Tax Regime:

Old Vs New Tax Regime: Income Tax Slab

The slab for the new and the old regime is mentioned in the table below:

Annual Income

Income Tax Slab Old Regime

New Regime FY

Up to Rs. 3 lakhs

N.A.

N.A.

Rs. 3 - 6 lakhs

5%

5%

Rs. 6 - 9 lakhs

20%

10%

Rs. 9 - 12 lakhs

30%

15%

Rs. 12 - 15 lakhs

20%

Rs. 15 lakhs and above

30%

List of Significant Exemptions included in the New Tax Regime

Here is a list of significant exemptions which are included under in the New Tax Regime:

Difference between Old vs. new Tax Regime: Which should an individual opt for?

There’s no universal answer to this question. Whether the old tax regime is better or the new tax regime is better varies from one individual to another.

The following estimates might be helpful for you to decide between the old and the new tax regimes:

Conclusion

In 2024, neither the old nor new tax regimes are ‘universally’ better. You have to choose between these two regimes depending on your income, investments and all the tax exemptions/deductions which you can avail. Most income brackets have seen a reduction in tax rate under the new tax regime. You do not have to manage deductions due to which income tax e-filing has become simpler. Under the new tax regime, the tax-free limit is Rs. 7 lakhs, which is higher than Rs. 5 lakhs in the old tax regime. However, the biggest drawback of the new tax regime is that it does not include some of the most substantial and prevalent deductions like Section 80C, 10(10D), HRA, LTA, and more, which were earlier available under the old tax regime.

 

By opting for the old tax regime, you can increase your savings due to tax exemptions and deductions made available under the Income Tax Act, 1961. However, you must be careful of the drawbacks that come with the old tax regime, such as more paperwork and a lower tax-free limit compared to the new tax regime.

Frequently Asked Questions (FAQs)

Q1. What is new about the ‘new’ tax regime?

A. The new tax regime was introduced in Budget 2020, and is a simplified tax structure under which individuals that are eligible for payment of taxes have to pay lower taxes. However, such individuals have to forego deductions and exemptions of the old tax regime. The tax benefits of various investments and expenses are eliminated under the new tax regime but the tax rates are comparatively lower than the old tax regime.

 

Q2. What is the old tax regime?

A. The old tax regime is an existing tax structure and taxpayers who opt for this tax regime can claim various exemptions and deductions. The old tax regime comes with a higher tax rate but it has approx. 70 exclusions and deductions such as HRA and LTA, which can significantly reduce taxable income of the taxpayers and also reduce the payment of taxes to the government. 

 

Q3. Can I switch between the old and new tax regime time and again?

A. Yes, the Indian taxpayers have the option of switching between the old and new tax regime at the time of filing their tax returns every year. However, once a taxpayer has opted for the new tax regime for a year, he is not eligible for claiming the tax benefits available under the old tax regime for the same year. If individuals with income from business have once opted for new tax regime in any of the previous fiscal years and in the current fiscal year opt for the old tax regime, they are not permitted to switch back to the new tax regime in any of the subsequent fiscal years.

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