Ever since the Modi government introduced the New Tax Regime in the 2020 Budget, one of the most discussed topics among taxpayers has been which tax regime is better. The answer largely depends on an individual’s income level.
For instance, if someone earns up to Rs 7.5 lakh annually, they are better off under the New Tax Regime, as they won’t have to pay any tax. Additionally, salaried individuals benefit from not having to submit investment proofs to their employers to claim tax deductions.
For those in higher income brackets, such as Rs 15 lakh or Rs 20 lakh, choosing the right tax regime isn’t as straightforward. The decision depends on factors like investments and existing home loans. The key difference between the two regimes is that the Old Tax Regime allows various deductions and exemptions on certain expenses and investments, including home loans, which can significantly impact tax savings; while the New Tax Regime, barring Standard Deduction, doesn’t have those benefits for taxpayers.
Here’s a table comparing the Old Tax Regime and New Tax Regime after the July 2024 Budget:
| Criteria | Old Tax Regime | New Tax Regime | |
| Tax Slabs & Rates | Progressive slabs with higher tax rates | Lower tax rates with fewer slabs | |
| Standard Deduction | Rs 50,000 for salaried individuals & pensioners | Rs 75,000 for salaried individuals & pensioners | |
| Exemptions & Deductions | Allows multiple deductions (80C, 80D, HRA, etc.) | Minimal exemptions (only standard deduction and NPS employer contribution) | |
| Rebate under Section 87A | Full tax rebate for income up to Rs 5 lakh | Full tax rebate for income up to Rs 7.5 lakh | |
| Investment Proof Submission | Required to claim deductions | Not required, making tax filing simpler | |
| Home Loan Interest (Section 24b) | Deduction up to Rs 2 lakh allowed | No deduction available | |
| 80C Deductions (PPF, ELSS, LIC, etc.) | Allowed up to Rs 1.5 lakh | Not applicable | |
| Health Insurance Deduction (80D) | Allowed (Rs 25,000-50,000) | Not applicable | |
| Suitability | Beneficial for those with high deductions & investments | Better for those with fewer investments and deductions | |
| Ease of Filing | More complex due to deductions | Simpler with no need for investment proof |
Tax slabs under both the regimes:
Old Tax Regime:
| Annual Income (Rs) | Taxable Income After Standard Deduction | Tax Rate | Tax Calculation |
| Up to 2,50,000 | No tax (exempt) | 0% | Rs 0 |
| 2,50,001 – 5,00,000 | Up to Rs 4,50,000 after deduction | 5% | 5% on income above Rs 2,50,000 |
| 5,00,001 – 10,00,000 | Up to Rs 9,50,000 after deduction | 20% | Rs 12,500 + 20% on income above Rs 5,00,000 |
| Above 10,00,000 | Rs 9,50,000+ taxable after deduction | 30% | Rs 1,12,500 + 30% on income above Rs 10,00,000 |
Key points to remember:
-Standard Deduction of Rs 50,000 reduces taxable income for salaried individuals and pensioners.
-After applying the deduction, those earning up to Rs 5.5 lakh can effectively pay zero tax due to the Rs 12,500 rebate under Section 87A.
-Cess (4%) and surcharge (if applicable) will be levied on the final tax amount.
New Tax Regime:
| Annual Income (Rs) | Tax Rate | Tax Calculation |
| Up to 3,00,000 | NIL (0%) | No tax |
| 3,00,001 – 7,00,000 | 5% | 5% on income above Rs 3,00,000 |
| 7,00,001 – 10,00,000 | 10% | Rs 20,000 + 10% on income above Rs 7,00,000 |
| 10,00,001 – 12,00,000 | 15% | Rs 50,000 + 15% on income above Rs 10,00,000 |
| 12,00,001 – 15,00,000 | 20% | Rs 80,000 + 20% on income above Rs 12,00,000 |
| Above 15,00,000 | 30% | Rs 1,40,000 + 30% on income above Rs 15,00,000 |
Key points to remember:
-Rebate under Section 87A: No tax for income up to Rs 7.5 lakh (Rs 7 lakh taxable income + Rs 50,000 standard deduction).
-Standard Deduction: Rs 75,000 for salaried and pensioners.
In this write-up, we will analyse which tax regime — old or new — is more beneficial for individuals with an annual income of up to Rs 15 lakh.
To make this comparison, we will assume that the taxpayer is claiming the standard deduction, Section 80C deduction, and certain other exemptions available on salary income. It is important to note that these exemptions are only available under the old tax regime.
For this analysis, we assume that, in addition to the standard deduction and the Section 80C deduction, 20% of the employee’s gross salary is exempt from tax under allowances such as House Rent Allowance (HRA) and other eligible exemptions.
On the other hand, the new tax regime offers only two deductions: Standard deduction of Rs 50,000; and deduction on the employer’s contribution to the employee’s NPS account.
Tax Savings Comparison: Old Tax Regime vs. New Tax Regime
For an individual with a taxable income of Rs 15 lakh, here’s how the tax liability differs under the two regimes:
Tax under the Old Regime (after utilizing all eligible deductions and exemptions) – Rs 1,17,000
Tax under the New Regime (after claiming the Rs 75,000 standard deduction and employer’s NPS contribution deduction) – Rs 1,30,000
This means that if a taxpayer fully utilizes deductions and exemptions under the old regime, they can save Rs 13,000 in taxes compared to the new tax regime.
When the New Tax Regime is more beneficial
If the same individual does not have any investments and only claims the Rs 50,000 standard deduction under the old regime, their tax liability would be Rs 2,57,400.
In comparison, under the new tax regime, their tax liability remains Rs 1,30,000, leading to a tax saving of Rs 1,27,400.
Thus, the new tax regime is more beneficial for those who do not invest in tax-saving instruments, while the old regime is better for those who claim multiple deductions and exemptions.