New Tax Regime vs Old Tax Regime

As the assessment year 2024-25 approaches, taxpayers need to grasp the intricacies of the existing and newly introduced tax systems. This article delves into essential elements like deductions, carry-forwards, and other pertinent regulations to aid taxpayers in making well-informed choices when submitting their Income Tax Returns. The Constitution of India, through Article 246, empowers the Central Government to enact income tax laws. A significant change came with introducing a New Tax Regime under Section 115 BAC, effective from the financial year 2020-21, starting 1st April 2020. In her Union Budget 2023 speech, Finance Minister Nirmala Sitharaman declared that the new tax system would henceforth be the default for those taxpayers who don't specify a preference. Taxpayers now have two distinct options for tax computation. Understanding these options is crucial before filing an income tax return, and this article aims to clarify these choices as follows: IndiaFilings experts are ready to assist you in filing your tax returns efficiently and accurately. [shortcode_20]

Old and New Tax Regime

As mentioned above, the Old Regime and New Regime refer to two different income tax structures that taxpayers in India can choose from while filing their returns. Here's a brief overview of each:

Old Tax Regime

The Old Regime, also known as the traditional tax system, allows for more deductions and exemptions that taxpayers can claim. These include deductions under Section 80C for investments in provident funds, life insurance, home loan principal repayment, and others, as well as exemptions for House Rent Allowance (HRA), Leave Travel Allowance (LTA), and more. The tax rates under the Old Regime are typically progressive, increasing as income increases, but the availability of deductions and exemptions can significantly reduce taxable income.

New Tax Regime

Introduced in the Union Budget 2020 and effective from the financial year 2020-21, the New Regime offers a simplified tax structure with lower tax rates. Still, it does not allow most deductions and exemptions available under the Old Regime.

The idea behind the New Regime is to simplify the tax filing process by eliminating the need for various deductions and exemptions, thereby offering lower tax rates across different income slabs.
Taxpayers opting for the New Regime need to forego most deductions and exemptions, making it a more straightforward but potentially less flexible option than the Old Regime.

Taxpayers have the option to choose between these two regimes each financial year based on what is more beneficial for their individual financial situation. The choice between the two regimes should be made after a careful analysis of one's income, possible deductions, and overall tax liability under each regime.

Tax Rates for AY 2024-25 (New tax Regime vs Old tax Regime)

For the assessment year (AY) 2024-25 under the Old Tax Regime (also known as the Regular Tax Regime) in India, the tax rates for individuals, Hindu Undivided Families (HUFs), Association of Persons (AOPs), Body of Individuals (BOIs), and Artificial Juridical Persons are structured as follows:

For Individuals, HUF, AOP, BOI, & Artificial Juridical Person (General)

Under the Old Regime for AY 2024-25, the following tax rates apply to individuals, HUFs, AOPs, BOIs, and Artificial Juridical Persons in the general category:

S.No.	Net Total Income Slab	Income Tax Rate
1	Up to ?2,50,000	Nil
2	?2,50,001 to ?5,00,000	5%
3	?5,00,001 to ?10,00,000	20%
4	Above ?10,00,000	30%

For Senior Citizens (Only Resident Individuals aged 60 or above)

For senior citizens who are resident individuals aged 60 years or above, the Old Regime provides adjusted tax slabs for AY 2024-25 as follows:

S.No.	Net Total Income Slab	Income Tax Rate
1	Up to ?3,00,000	Nil
2	?3,00,001 to ?5,00,000	5%
3	?5,00,001 to ?10,00,000	20%
4	Above ?10,00,000	30%

For Super Senior Citizens (Only Resident Individuals aged 80 or above)

For super senior citizens, who are resident individuals aged 80 years or above, the tax structure under the Old Regime for AY 2024-25 is specially designed to offer beneficial rates:

S.No.	Net Total Income Slab	Income Tax Rate
1	Up to ?5,00,000	Nil
2	?5,00,001 to ?10,00,000	20%
3	Above ?10,00,000	30%

Section 87A Rebate: Available to Resident individuals with a total income of up to ?5,00,000.

The rebate is lower than 100% of tax payable or ?12,500.
This rebate is applied before adding the Health and Education Cess.
The rebate is available for all income types except Long-Term Capital Gains under Section 112A.

Surcharge Rates for Individual, HUF, AOP, BOI, & Artificial Juridical Person:

The surcharge rates applicable to individuals, HUFs, AOPs, BOIs, and Artificial Juridical Persons under the Old Regime for AY 2024-25 are structured as follows:

S.No.	Total Income Slab	Surcharge Rate
1	Up to ?50,00,000	Nil
2	?50,00,001 to ?1,00,00,000	10%
3	?1,00,00,001 to ?2,00,00,000	15%
4	?2,00,00,001 to ?5,00,00,000	25%
5	Above ?5,00,00,000	37%

Note: Surcharge is subject to Marginal Relief. A 4% Health and Education Cess is added to the total tax and surcharge.

Section 115BAC of the Income Tax Act - New Regime

Under Section 115BAC of the Income Tax Act, the New Tax Regime offers simplified tax brackets and rates for individuals, HUFs, AOPs, BOIs, and AJPs, along with a full tax rebate for individuals with an annual income of up to ?7 lakhs. Here's a detailed breakdown:

Section 115BAC: Tax on Income of Individuals, HUF, AOP, BOI & AJP

Under Section 115BAC, applicable for AY 2024-25, the New Tax Regime outlines specific tax rates for individuals, HUFs, AOPs, BOIs, and AJPs, aiming to simplify the tax structure with revised slabs and rates:

S.No.	Total Income Slab	Income Tax Rate
1	Up to ?3,00,000	Nil
2	?3,00,001 to ?6,00,000	5%
3	?6,00,001 to ?9,00,000	10%
4	?9,00,001 to ?12,00,000	15%
5	?12,00,001 to ?15,00,000	20%
6	Above ?15,00,000	30%

Surcharge Rates:

Under the new regime, the surcharge applicable to individuals, HUFs, AOPs, BOIs, and AJPs would follow the standard surcharge rates as applicable in the broader tax structure, based on the income slabs exceeding certain thresholds.

Total Income	Surcharge Rate
Up to ?50,00,000	Nil
?50,00,001 to ?1,00,00,000	10%
?1,00,00,001 to ?2,00,00,000	15%
Above ?2,00,00,000	25%

Special Points Regarding Section 115BAC:

The New Tax Regime will be the default if no choice is made.
Taxpayers without income from business or profession can choose between the old and new regimes annually.
Once choosing a regime, those with business/professional income are bound by it for future assessment years, with a one-time option to revert to the old regime.
Taxpayers under 115BAC are exempt from Alternate Minimum Tax (AMT).
Deductions under Chapter VI-A are mostly not allowed, with exceptions like 80JJAA and 80CCD(2).
Any additional depreciation cannot be carried forward in the first year of opting for 115BAC with business income.
A tax rebate under Section 87A is available for resident individuals with an income up to ?7 lakhs, with the lower 100% tax payable or ?25,000 being rebated.

Examples of Tax Calculations:

For an individual with a salary of ?8,00,000 and ?1,50,000 investment in PPF:

Under the Old Regime, Net Taxable Income after deductions is ?6,00,000.
Under the New Regime, Net Taxable Income remains at ?7,50,000 due to no deductions.
For an individual with a salary of ?10,00,000 and ?1,50,000 investment in PPF:
Both under Old and New Regimes: The Net Taxable Income varies due to the applicability of deductions under the Old Regime.

This summary offers taxpayers an overview of the more beneficial tax regime based on their circumstances. However, it's advisable to consult with a tax professional for personalized advice. [ shortcode_20]

Conclusion

In summary, as we head into the 2024-25 tax year, it's key for taxpayers to get a handle on the differences between the old and new tax systems in India. Choosing the right one depends on your financial situation. The old system offers many deductions which can lower your tax, while the new system has simpler, often lower rates but fewer deductions. With the new system set to become the default, it’s important to think carefully about which one suits you best. IndiaFilings experts are on hand to guide you through the process of filing your Income Tax Return (ITR) with efficiency. [shortcode_20]