Old Tax Regime vs. New Tax Regime

With the introduction of new tax regime for individuals in 2020, the govt. gave an option to choose between the old tax regime and the new tax regime. However, the new regime got its real glow when the government introduced various incentives in the 2023 Budget to encourage the adoption of the new regime.

These changes hint that the government is encouraging taxpayers to transition to the new regime and eventually phase out the old one. Currently, the new regime is now the default tax regime, but the old tax regime will continue to exist.

How is the new regime different from the old regime, let us understand:

1. Under the old regime, taxpayers can claim substantial deductions, including those specified in Section 80C, Section 80D, and Section 80TTA of the Income Tax Act. Conversely, individuals choosing the new regime can enjoy reduced tax rates depending on their income bracket, without as many deductions available.

2. Different tax rates:

3. 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!

Difference Between Old Vs New Tax Regime: Which is Better?

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 your decision making easier, below is a table capturing breakeven point for various income levels 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?

Here is a comparison between the deductions and exemptions available under the new and the old tax regime:

To understand more about such interesting concepts, stay tuned.

Until next time !!!