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Old vs New Tax Regime: Which Is Better New Or Old Tax Regime For Salaried Employees?2024

Which Is Better New Or Old Tax Regime For Salaried Employees

Which Is Better New Or Old Tax Regime For Salaried Employees The Budget 2023 created significant uncertainty among taxpayers about choosing between the old and new tax regimes. The government introduced various incentives in the 2023 Budget to promote the adoption of the new regime.

These changes indicate that the government aims to encourage taxpayers to shift to the new regime and eventually retire the old one. Although the new regime is now the default tax regime, the old tax regime will remain available 

Which Is Better New Or Old Tax Regime For Salaried Employees Increased Tax Rebate Limit: A full tax rebate on an income up to ₹7 lakhs has been introduced under the new tax regime, compared to ₹5 lakhs under the old tax regime. Which Is Better New Or Old Tax Regime For Salaried Employees  This means that taxpayers earning up to ₹7 lakhs will not have to pay any tax under the new regime!

Revised Tax Slabs: The tax exemption limit has been raised to ₹3 lakhs, and the new tax slabs are:

 

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%

 

  • The tax rates under both regimes are compared as below:
        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:

Which Is Better New Or Old Tax Regime For Salaried Employees For salary income, the standard deduction of ₹50,000, previously available only under the old regime, is now applicable to the new tax regime as well. Which Is Better New Or Old Tax Regime For Salaried Employees  This, combined with the rebate, means that an income of up to ₹7.5 lakhs is tax-free under the new regime.

Family Pension Deduction: 

Individuals receiving a family pension can claim a deduction of ₹15,000 or one-third of the pension amount, whichever is lower.

Lowered Surcharge for High Net Worth Individuals:

The surcharge rate on income exceeding ₹5 crores has been decreased from 37% to 25%. This change will reduce 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. Which Is Better New Or Old Tax Regime For Salaried Employees  You will have the option to switch between the two regimes annually to check the tax benefits.

Old Tax Regime

Which Is Better New Or Old Tax Regime For Salaried Employees  The old regime refers to the tax system in place before the introduction of the new regime. It offers more than 70 exemptions and deductions, such as HRA and LTA, that can effectively lower your taxable income and reduce your tax liability. Which Is Better New Or Old Tax Regime For Salaried Employees  One of the most utilised deductions is Section 80C, allowing taxpayers to reduce their taxable income by up to ₹1.5 lakh. Taxpayers are given the option to choose between the old and new tax regimes.

 

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

The choice between switching to the new tax regime or sticking with the old one should be guided by the potential tax savings through deductions and exemptions available under the old regime. Which Is Better New Or Old Tax Regime For Salaried Employees  To simplify this decision-making process, we have calculated a breakeven point for different income levels (see the table below) for salaried individuals under 60 years of age. This can help you decide which regime is more beneficial for you.

 

The Breakeven Threshold for Deciding Between New vs Old Tax Regimes

The breakeven point is the income threshold at which there is no disparity in tax liability between the two tax regimes.

Which Is Better New Or Old Tax Regime For Salaried Employees  If your total eligible deductions and exemptions under the old tax regime exceed the breakeven threshold for your income level, it is recommended to remain in the old regime. Conversely, if the breakeven threshold is higher, opting for the new tax regime would be advantageous.

 

If you have salary income:

 

Income Level Less: Standard Deduction Net Income Tax under both regimes Additional Deductions
(over & above standard deduction) required in Old Regime to Break Even
Which Regime to choose old or new tax regime

 

₹7,00,000 ₹50,000 ₹6,50,000 ₹0 ₹1,50,000 You will benefit only in new regime.
₹8,00,000 ₹50,000 ₹7,50,000 ₹36,400 ₹1,38,500 Old regime: if deductions > Rs 1,38,500
New regime: if deductions < Rs 1,38,500
₹9,00,000 ₹50,000 ₹8,50,000 ₹41,600 ₹2,12,500 Old regime: if deductions > Rs 2,12,500
New regime: if deductions < Rs 2,12,500
₹10,00,000 ₹50,000 ₹9,50,000 ₹54,600 ₹2,50,000 Old regime: if deductions > Rs. 2,50,000
New regime: if deductions < Rs 2,50,000
₹12,50,000 ₹50,000 ₹12,00,000 ₹93,600 ₹3,12,500 Old regime: if deductions > Rs. 3,12,500
New regime: if deductions < Rs 3,12,500
₹15,00,000 ₹50,000 ₹14,50,000 ₹1,45,600 ₹3,58,000 Old regime: if deductions > Rs. 3,58,000
New regime: if deductions < Rs 3,58,000
₹15,50,000 ₹50,000 ₹15,00,000 ₹1,56,000 ₹3,75,000 Old regime: if deductions > Rs. 3,75,000
New regime: if deductions < Rs 3,75,000
₹16,00,000 ₹50,000 ₹15,50,000 ₹1,71,600 ₹3,75,000 Old regime: if deductions > Rs. 3,75,000
New regime: if deductions < Rs 3,75,000

 

If you have income other than salary:

Tax under Old vs New Regime 

Here are some calculations to aid your decision between the old and new tax regimes:

– If total deductions are ₹1.5 lakhs or less: Opting for the new regime will be advantageous.

– If total deductions exceed ₹3.75 lakhs: Sticking with the old regime will be advantageous.

– If total deductions fall between ₹1.5 lakhs to ₹3.75 lakhs: The better choice will vary based on your income level.

How to Choose Between Old and New Tax Regimes?

When deciding between the two tax regimes, it’s crucial to factor in the available tax exemptions and deductions provided by the old tax regime. After accounting for all eligible exemptions and deductions, you can determine your net taxable income. Which Is Better New Or Old Tax Regime For Salaried Employees  Calculating the tax liability based on this net taxable income under the old tax regime allows for a comparison with the tax liability under the new tax regime.

 

Opting for the regime with the lower tax liability is the logical choice. It’s also important to notify your employer of your chosen regime so that the appropriate Tax Deducted at Source (TDS) can be applied to your salary.

 

If you have incurred losses from house property, capital gains, or business and profession, these should also be considered when making an informed decision on which regime to select. Additionally, both current year’s losses and eligible losses from previous years that can be carried forward may impact your future income calculation and tax obligations.

Conclusion

Many individuals often find themselves questioning the disparities between the old and new tax regimes. Which Is Better New Or Old Tax Regime For Salaried Employees  The new income tax regime is designed to accommodate those who have more personal commitments such as repayment of personal/vehicle loans, medical treatment of parents or dependents, or wish to avoid the burden of extensive tax preparation or have minimal tax deductions due to their ineligibility for section 10 exemptions, standard deductions

tax on employment, employer contribution to pension scheme etc., Which Is Better New Or Old Tax Regime For Salaried Employees  Conversely, the old tax regime can yield more tax savings for senior citizens, who derive a substantial portion of their income from interest, can benefit from Section 80TTB, which allows them to claim Rs.50,000 as interest income deduction and feel more secure under the old tax regime.

Both the old and new tax regimes possess advantages and disadvantages. The previous tax structure encourages taxpayers to cultivate a habit of saving, while the new tax structure favors employees with lower earnings and investments, resulting in fewer deductions and exemptions. The new Which Is Better New Or Old Tax Regime For Salaried Employees  tax system is considered safer and simpler, involving fewer records and reducing the potential for tax evasion fraud. However, due to the unique nature of individual deductions and exemptions, a thorough comparison of the two regimes is necessary to determine the best fit for each person.

Sources : https://cleartax.in/s/old-tax-regime-vs-new-tax-regime

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