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Old Tax Regime vs New Tax Regime
Mar 29, 2024

Old Tax Regime vs New Tax Regime: Choosing the Best for Tax Savings in 2024

In the recently passed Interim Budget 2024-25, no changes were made in regard to direct taxes. However, taxpayers have been dealing with a major dilemma for the last few years: Which is better for saving taxes - the old tax regime or the new tax regime? Even though the new tax regime was introduced in Budget 2020, it was not until Budget 2023 that the government made it the default tax regime. However, the old tax regime is also functioning, with taxpayers free to choose the one which suits them the best. If you need help in that regard, read on.

Old Tax Regime vs New Tax Regime - A Brief Look 

Let’s get a better understanding of each regime.

The New Tax Regime

Introduced in the 2020 Budget, the new tax regime made changes to the tax and offered concessional tax rates. However, opting for this regime comes at the cost of letting go of exemptions like HRA, LTA, 80C, 80D, and more. Initially, this may have led to few takers for the new regime. Hence, the Budget 2023 introduced a slew of changes, such as an increase in the limit of tax rebates, and better streamlining of tax slabs for higher adoption of the regime.

The Old Tax Regime

The old tax regime refers to the system that existed before the introduction of the new regime. The old regime allows for over 70 exemptions and deductions, including HRA, LTA, Section 80C, and more.**

Tax Rates under New and Old Tax Regimes 

Currently, the tax rates between the old and new tax regimes stand as follows:**
  Income Slab  (in Rs) 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%
More than 15,00,000 30% 30% 30%
Note that, under the old tax regime, the income tax exemption limit for senior citizens (i.e., individuals between 60-80 years of age) is Rs 3 lakhs while for super senior citizens (individuals more than 80 years old), it is Rs 5 lakhs. No such distinctions are present in the new tax regime.**

Deductions and Exemptions Allowed Under Old vs. New Tax Regime

Here are some of the common deductions and exemptions listed, and their applicability under each regime.**
  Income Slab (in Rs) Old Tax  Regime New tax Regime  (until 31st March  2023) New Tax Regime  (From 1st April  2023)
Eligibility for rebate based on income level  5 lakhs  5 lakhs  7 lakhs
Standard Deduction  50,000  50,000
Effective tax-free salary income  5.5 lakhs  5 lakhs  7.5 lakhs
Rebate u/s 87A 12,500 12,500 12,500
HRA Exemption X X
Leave Travel Allowance (LTA) X X
Standard Deduction (Rs 50,000) X
Deduction u/s 80C X X
Employee’s (own) contribution to NPS X X
Employer’s contribution to NPS
Health insurance premium – 80D X X
Interest on Electric vehicle loan – 80EEB X X
Savings bank interest u/s 80TTA and 80TTB X X
Deduction on Family Pension Income
Gifts up to Rs 50,000
Exemption on voluntary retirement 10(10C)
Exemption on gratuity u/s 10(10)
Exemption on Leave encashment u/s 10(10AA)
To know which tax regime is suitable for you, it is crucial to review the tax rates for the slab you fall under. Additionally, one must check all the tax exemptions and deductions they can claim under each regime and see which regime would reduce their tax liability the most. Reaching out to a tax advisor may help.

Health Insurance - Benefits Beyond Tax-Saving

If you opt for the old regime, paying health insurance premiums can help you save taxes.** While that is a beneficial aspect of  health insurance, it should not be bought only for its tax-saving benefit. Health insurance offers financial protection in times of medical emergency. At a time when medical inflation is rising and so are the rates of diseases and illnesses, having a financial backup for such situations is very important. By opting for general insurance health-related plans like health insurance, critical illness insurance, senior citizen health plans, and so on, one can ensure there is financial support when a medical urgency comes.* Claims are subject to terms and conditions set forth under health insurance policy. Knowing the premium before you finalise the health insurance policy can help in proper financial planning. For this purpose, you can use a health insurance calculator that gives you an estimate of the premium.   *Standard T&C apply. **Tax benefits are subject to change in prevalent tax laws. Disclaimer: The content on this page is generic and shared only for informational and explanatory purposes. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making any related decisions. Insurance is the subject matter of solicitation. For more details on benefits, exclusions, limitations, terms, and conditions, please read the sales brochure/policy wording carefully before concluding a sale.

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