The 2023 Budget made people unsure about which tax regime to follow: the old tax regime or the new tax regime. The government introduced various incentives in the 2023 Budget to encourage the adoption of the new tax 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.
Let’s look at both regimes and see which regime to opt for in 2024.
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 tax slabs in new tax regime are as follows:
| Total Income | Rate of Tax |
| up to ₹3,00,000 | Nil |
| ₹3,00,001- ₹6,00,000 | 5% |
| ₹6,00,001- ₹9,00,000 | 10% |
| ₹9,00,001- ₹12,00,000 | 15% |
| ₹12,00,001- ₹15,00,000 | 20% |
| ₹15,00,001 and above | 30% |
Here is a comparison of income tax rates in New and Old Tax Regime:
| Income Slab | Old Tax Regime | New Tax Regime (until 31st March 2023) | New Tax Regime (from 1st April 2023) |
| ₹0 – ₹2,50,000 | – | – | – |
| ₹2,50,000 – ₹3,00,000 | 5% | 5% | – |
| ₹3,00,000 – ₹5,00,000 | 5% | 5% | 5% |
| ₹5,00,000 – ₹6,00,000 | 20% | 10% | 5% |
| ₹6,00,000 – ₹7,50,000 | 20% | 10% | 10% |
| ₹7,50,000 – ₹9,00,000 | 20% | 15% | 10% |
| ₹9,00,000 – ₹10,00,000 | 20% | 15% | 15% |
| ₹10,00,000 – ₹12,00,000 | 30% | 20% | 15% |
| ₹12,00,000 – ₹12,50,000 | 30% | 20% | 20% |
| ₹12,50,000 – ₹15,00,000 | 30% | 25% | 20% |
| >₹15,00,000 | 30% | 30% | 30% |
Standard Deduction and Family Pension Deduction:
- 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, along with the rebate, makes ₹7.5 lakhs as your tax-free income under the new regime.
- Family pension: Those receiving a family pension can claim a deduction of ₹15,000 or 1/3rd of the pension, whichever is lower.
- 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 10IEA before the due date. You will have the option to switch between the two regimes annually to check the tax benefits.
Old Tax Regime
Under the old tax 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 is Sector 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.
The decision to switch to the new or remain in the old tax regime and 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.
For more information click here.
Whether opting for the new regime with its revised tax slabs or sticking to the old regime with its array of exemptions and deductions, Fintaco Consultants ensures that clients maximize their tax benefits while staying compliant with regulations. Trust Fintaco Consultants for expert advice tailored to your financial needs and aspirations.
