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Old vs New Tax Regime
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Old VS New Tax Regime
The income tax is a direct tax with a progressive slab rate, meaning that as a taxpayer's income rises, so does the tax rate.
Two tax regimes are set up by the Income-tax Act of 1961:
The old regime, which permits a number of exemptions and deductions, and the new regime, which gives reduced tax rates but no exemptions.
Individuals in India are subject to income tax using a slab system, in which various income brackets are given different tax rates. The tax rates rise in line with an individual's income. This kind of taxation makes it possible for the nation to have a progressive and equitable tax structure. Every budget usually includes a periodic revision to the income tax slabs. different taxpayer groups are subject to varying slab rates.
NEW TAX REGIME - CHANGES
• Revised Slabs: Under the current administration, the slabs have been updated.
• Enhanced Standard Deduction: Under the new system, salaried employees' standard deduction has been raised to Rs. 75,000.
• Family Pension: From Rs. 15,000 to Rs. 25,000, the deduction for family pensions received has beenraised.
• NPS Contribution: The employer's NPS contribution deduction cap was raised from 10% to 14%.
• A salaried employee may save up to Rs. 17,500 in taxes under the new tax regime as a result of the mentioned adjustments.
INCOME TAX SLABS FOR FY 2024-25 – NEW REGIME
A new regime under Section 115BAC is introduced in the Budget 2020, allowing individuals and HUF taxpayers to pay income tax at reduced rates with fewer available exclusions and deductions. The new tax regime system, Section 115BAC, went into effect in FY 2020–21 (AY 2021-22). Concessional tax rates with fewer exemptions and deductions were implemented under the new tax system. The Budget 2023 revised Section 115BAC, and the new regime became the default regime for FY 2023–2024. In Budget 2024, this section was significantly modified with updated tax rates. Before the ITR filing deadline, a person or HUF must submit Form 10-IEA if they choose to continue with the old regime. Significant adjustments to the tax slabs under the New Tax Regime were made in the Budget 2024 and will take effect in FY 2024–2025 (AY 2025–2026). Along with a larger basic deduction and an improved family pension deduction, taxpayers can now take advantage of the updated tax slabs.
| TAX SLAB FOR FY 2024-25 | TAX RATE |
|---|---|
| UP TO RS. 3 LAKH | NIL |
| RS 3 LAKH TO 7 LAKH | 5% |
| RS 7 LAKH TO RS 10 LAKH | 10% |
| RS 10 LAKH to 12 LAKH | 15% |
| RS 12 LAKH TO RS 15 LAKH | 20% |
| ABOVE 15 LAKH | 30% |
Other advantages to the taxpayer who opts for the new tax regime:
• From Rs. 50,000 to Rs. 75,000, the standard deduction limit against salaried income has been raised.
• The Family Pension's maximum deduction limit has been raised from Rs. 15,000 to Rs. 25,000.
• According to Section 80CCD (2), employers' contributions to the pension plan are now deducted at a rate of 14% of salaries instead of 10%.
ELIGIBILITY CRITERIA FOR OPTING UNDER NEW SCHEME
Hindu Undivided Families (HUFs) and individuals must pay taxes under the new tax regimes for the assessment year 2024–2025 unless they choose to use the old one while submitting their income returns on time. The total income must satisfy the following requirements under the new tax regime:
These deductions are not available under new scheme.
• Deductions specified in section 35/35AD/35CCC
• Clause (iia) of section 57
• Deductions under chapter VI –A ,except those specified in section 80CCD/80JJAA
• Deductions specified in section 24(b)
• Deductions specified in section 32(1)/32AD/33AB/33ABA
• Clause (5)/(13A)/(14)/(17)/(32) of section 10/10AA/16
• Any losses from previous assessment years brought on by the aforementioned deductions or losses from residential property are not offset in this computation.
• No deductions or exemptions pertaining to benefits or allowances are taken into account in the computation.
• According to clause (iia) of Section 32, the computation is carried out without claiming any additional depreciation.
DEDUCTIONS WHICH CANNOT BE CLAIMED UNDER THE NEW TAX REGIME
The following deductions and exemptions cannot be claimed under the new tax regime.
• House rent allowance (HRA).
• Leave rent allowance (LTA).
• Professional tax and entertainment allowance on salary.
• The deduction under section 80TTA/80TTB.
• Allowance to MP/MLAs.
• Minor child income allowance.
• Children education allowance.
• Helpers allowance.
• Deduction under section 32AD, 33AB, and 33ABA.
• Donation to political party/trust, etc.
• Employees own contribution to NPS.
• Deduction of any other allowance,ance including food allowance of Rs. 50/ meal subject to 2 meals a day.
• Chapter VI-A deduction ( section 80C, 80D, 80E and so on , except Section 80CCD(2) and Section 80JJAA).
• Interest on housing loan on self- occupied property or vacant property (Section 24).
• Deduction under section 35AD or section 35CCC.
• Various deductions for donation or expenditure on scientific research contained in section 35(2AA) or 35(1)(ii) or (iia) or(iii).
• Other special allowance section 10(14).
• Additional depreciation under section 32(1)(iia).
EXEMPTIONS AND DEDUCTIONS AVAILABLE UNDER NEW REGIME
• Gifts up to Rs. 50000/-.
• Deduction for employer’s contribution to NPS account.
• Deduction for additional employee cost.
• Standard deduction has increased from Rs. 50000 to Rs.75000 in budget 2024 applicable for FY 2024-25.
• The budget has also introduced deduction under section 57(iia) of family pension scheme, which is increased from Rs. 15,000 to Rs. 25,000.
• The deduction on employers contribution to pension scheme has been increased from 10% of salary to 14% of salary.
• Budget 2023 has also introduced deduction under section 57(iia) of family pension scheme.
• Interest on home loan on let out property.
• Exemption on voluntary retirement , gratuity u/s 10(10) and leave encashment.
• Allowances for office purpose.
• Any compensation received to meet the cost of travel on tour or transfer.
• Conveyance allowance received to meet the conveyance expenditure incurred as part of the employment.
• Transport allowance in case of a specially abled person.
INCOME TAX SLABS FOR FY 2024-25– OLD REGIME
Individuals aged below 60 years and HUF:
| INCOME SLABS FY 2024-25 | TAX RATE |
|---|---|
| UP TO RS 2,50,000 | NIL |
| RS 2,50,001 –RS 5,00,000 | 5% |
| RS 5,00,001 TO RS 10,00,000 | 20% |
| RS 10,00,001 AND ABOVE | 30% |
• Individuals, HUFs under 60, and NRIs are all exempt from income tax up to Rs 2,50,000.
• There will be a cess and surcharge.
Individuals aged above 60 years to 80 years
| INCOME SLABS FY 2024-25 | TAX RATE |
|---|---|
| UP TO RS 3,00,000 | NIL |
| RS 3,00,001 –RS 5,00,000 | 5% |
| RS 5,00,001 TO RS 10,00,000 | 20% |
| RS 10,00,001 AND ABOVE | 30% |
Senior citizens who are over 60 but under 80 years old are free from income taxes up to Rs. 3 lakh.
There will be a cess and surcharge.
Individual aged above 80 years.
| INCOME SLABS FY 2024-25 | TAX RATE |
|---|---|
| UP TO RS 5,00,000 | NIL |
| RS 5,00,001 TO 10,00,000 | 20% |
| RS 10,00,001 AND ABOVE | 30% |
For very elderly citizens over 80, the income tax exemption limit is up to Rs 5 lakh.
There will be a cess and surcharge.
OLD TAX REGIME AND NEW TAX REGIME – WHICH IS BETTER
Those in the middle class with taxable incomes up to Rs 15 lakh likely to gain the most from the new tax system. For those with high incomes, the old system is the best choice.
Those who invest little benefit from the new income tax system. Anyone paying taxes without claiming tax deductions can benefit from paying a lower rate of tax under the new tax regime, which offers six lower-income tax slabs. That being said, the old regime helps you with higher tax deductions and lower tax outgo if you already have a financial plan in place for wealth creation through investments in tax-saving instruments, medical claims and life insurance, paying for children's tuition, making EMI payments on education loans, purchasing a home with a home loan, and so on. Taxpayers may compare the two regimes if they wish to choose the concessional tax rates in light of the aforementioned and the new income tax regime. Because it may differ from person to person, it is therefore wise to perform a comparative evaluation and analysis under both regimes before selecting the most advantageous one.
Selecting the tax regime at the start of the fiscal year is crucial from the standpoint of tax planning. The income tax under the old and new tax regimes must be compared by the taxpayer. The investments and TDS or advance tax payable calculations are made in accordance with the tax system that the taxpayer selects at the start of the year. Additionally, if the taxpayer wants to use the previous tax regime, they must provide Form 10IEA to the income tax department prior to completing their return.
NEW TAX REGIME- LOSS UNDER HOUSE PROPERTY
Under the new tax structure, you are not able to deduct interest on a housing loan for a self-occupied property. The new tax structure does not allow for the Rs 2 lakh deduction that was permitted under the old system. Additionally, you are unable to set off the Rs 2 lakh loss from your salary income from your house property.
You can deduct interest paid on your housing loan if you have rented out your home. Keep in mind that, in contrast to the old regime, the new tax regime limits the deduction to the taxable rent collected from the property. The loss from the residential property resulting from excess interest paid beyond the rental income cannot be offset by any other source of income under the new regime. Additionally, the loss from residential property cannot be carried over to subsequent years for setoff.
NEW TAX REGIME- INCOME FROM BUSINESS AND PROFESSION
Deductions and exemption are not allowed under business income:
• Exemption under 10AA for SEZ units.
• Capital expenditure under section 35AD.
• Expenditure on scientific research under section 35.
• Sector – specific business deductions under section 33AB and 33ABA.
• Investment allowance under section 32AD.
• Additional depreciation under section 32.
• An individual or HUF cannot claim set off of the brought forward business loss or unabsorbed depreciation.
INCOME TAX RATE IN CASE OF DOMESTIC COMPANIES – NEW REGIME
| PARTICULARS | TAX RATE |
|---|---|
| Company opts for section 115BAB (not covered in sections 115BA and 115BAA) & is registered on or after October 1, 2019, and has commenced manufacturing on or before 31st March 2024 and subject to the conditions specified in the section. | 15% |
| Company opts for Section 115BAA, wherein the total income of a company has been calculated without claiming specified deductions, incentives, or exemptions and additional depreciation as specified in the section. | 22% |
| The company opts for section 115BA registered on or after March 1, 2016 and engaged in the manufacture of any article or thing and does not claim the deduction as specified in the section. | 25% |
| Turnover or gross receipt of the company is less than Rs. 400 crore in the previous year 2020-21 | 25% |
| Any other domestic company | 30% |
Surcharge applicable
| PARTICULAR | SURCHARGE |
|---|---|
| Total income > Rs. 1 crores | 7% of income tax |
| Total income > Rs. 10 crores | 12% of income tax |
| Where domestic company opted for sec 115BAA and 115BAB | 10% of income tax |
Health and education cess at the rate of 4% will be added in the income tax liability.
INCOME TAX REGIME IN CASE OF PARTNERSHIP /LLP- OLD /NEW REGIME
• A partnership firm / LLP is taxable at the rate of 30%.
• Surcharge at the rate of 12% is levied on income more than Rs. 1 crores.
• Health and education cess at the rate of 4% will be added in the
income tax liability.
- FAQ
1. What is the new tax regime under the Income Tax Act?
For both individuals and Hindu Undivided Families (HUFs), the new tax regime under the Income Tax Act offers a set of lower tax rates. By doing away with the majority of deductions and exemptions, taxpayers can take advantage of reduced tax rates without having to use certain exemptions, such as the HRA, standard deductions, or other allowances.
2. How is the new tax regime different from the old tax regime?
The tax rate structure is the primary distinction. While the old tax regime let taxpayers to claim exemptions and deductions such as HRA, 80C, etc., but had higher tax rates, the new tax regime offers lower tax rates but does away with the majority of exemptions and deductions.
3. Who is eligible for the new tax regime?
The new tax regime is available for individual taxpayers and HUFs. It is also available for senior citizens and super senior citizens, but certain exemptions related to senior citizens (like for interest on savings) are not available under this regime.
4. What are the exemptions and deductions that are not available under the new tax regime?
The new tax regime does not allow exemptions or deductions such as:
• House Rent Allowance (HRA).
• Standard Deduction.
• Deductions under section 80C (like PPF, ELSS, etc.).
• Deductions for insurance premiums, home loan interest, etc.
• Tax rebates like 80D, 80E, etc.
5.Are there any specific benefits under the new tax regime?
The reduced tax rates are the main advantage of the new tax system. Taxpayers who do not claim numerous exemptions or deductions might find it advantageous since they would be able to take advantage of the lower rates without having to keep track of anything or make claims.
6. Can I avail of any deductions under the new tax regime?
The new tax system permits very few deductions. Among the exclusions are:
• Employer contributions to gratuities, NPS, and EPF.
• A deduction for specific types of income, such as revenue from agriculture.
7. How do I decide which tax regime is better for me?
Your income level and the deductions and exemptions you qualify for will determine whether you choose the old or new tax regime. The previous tax system may be advantageous if you take use of several exemptions and deductions. On the other hand, the new tax regime may result in lower tax if you don't claim many deductions.
8. Are there any changes to the tax regime in future budgets?
Yes, annual finance budgets have the power to alter tax legislation. Since the government may alter the tax code, exemptions, or deductions in subsequent years, it's critical to keep informed of the most recent news. To find the best choice for your particular circumstance, it is best to speak with a tax expert if you require more information.
9. What is the Tax Rate for New Manufacturing Companies?
Under Section 115BAB, a new manufacturing business that meets the relevant criteria (such as being incorporated after October 1, 2019) can choose for a reduced tax rate of 15% (plus applicable surcharges and cess), subject to certain limitations.
10. Are There Any Tax Benefits or Exemptions for Certain Industries or Businesses?
Actually, under certain regulations, certain business sectors and industries may be eligible for tax exemptions or reduced tax rates. For instance:
• Businesses engaged in manufacturing (under Section 115BAB).
• Businesses that focus on exporting may be eligible for exclusions under Section 10AA.
• Section 35 allows for deductions for research and development firms.
• According to SEZ regulations, businesses that operate in SEZs are eligible for exemptions.
11. Can Companies Choose Between Different Tax Regimes?
Indeed, businesses have the option to select between the Old Tax Regime and the New Tax Regime, which has lower rates. Companies will not be able to take use of the exclusions and deductions that were available under the Old Tax Regime under the New Tax Regime.
12. What is the Tax Rate for Companies under the New Tax Regime?
For domestic businesses choosing to use the new system (as stated in Section 115BAA):
• 22% is the tax rate (with relevant cess and surcharges).
• Under Section 115BAB, new manufacturing businesses are eligible for a 15% tax rate reduction (plus surcharge and cess).
Note: Businesses who choose the new tax regime will have to give up the deductions and exemptions that were offered under the previous one.
13.What are the Key Provisions for Foreign Companies Operating in India?
40% is the tax rate for foreign corporations (plus cess and surcharge). If a foreign company's tax payable is less than the MAT, they are also subject to MAT. Additionally, they might be subject to taxes on revenue received from India, including capital gains, royalties, and fees for technical services.
14.How Are Capital Gains Taxed for Companies?
If the assets are sold within 36 months, the short-term capital gains (STCG) are subject to a 15% tax. If assets are kept for more than 36 months, long-term capital gains (LTCG) are taxed at a rate of 20% with indexation benefits. Depending on the asset type (e.g., shares, property) and holding period, different tax rates may apply.