The comparison of old and new tax regime will help you in understanding the implications on your tax liability.
The Union Budget, 2020 introduced a new tax regime with lower tax slab rates. If the individual or HUF chooses to opt for this new tax regime, then he will have to forgo majority of exemptions and deductions.
Under the new tax regime, while the income tax slab rates are low, the individual or HUF will have to give up on the majority of the exemptions and deductions. But if such assessee opts for the old tax regime, then he will not have to forgo these exemptions and deductions, but will have to pay higher tax in comparison to the new tax regime.
Now, this leads to confusion in the mind of the assesse as to what tax regime he should opt for? To understand this, the taxpayer should know the comparison between the old & new tax regime.
Comparison of Old & New Tax Regime
The following tables encompasses the comparison of old & new tax regime:
| Particulars | Old Tax Regime (FY 2022-23 or 2023-24) | New Tax Regime (FY 2022-23) | New Tax Regime (FY 2023-24) | New Tax Regime (FY 2024-25) |
|---|---|---|---|---|
| House Rent Allowance Exemption | Allowed | Not Allowed | Not Allowed | Not Allowed |
| Leave Travel Allowance Exemption | Allowed | Not Allowed | Not Allowed | Not Allowed |
| Children Education Allowance | Allowed | Not Allowed | Not Allowed | Not Allowed |
| Entertainment Allowance | Allowed | Not Allowed | Not Allowed | Not Allowed |
| Voluntary Retirement Exemption | Allowed | Allowed | Allowed | Allowed |
| Gratuity Exemption | Allowed | Allowed | Allowed | Allowed |
| Leave Encashment Exemption | Allowed | Allowed | Allowed | Allowed |
| Conveyance Allowance for travel between home and office | Allowed | Allowed | Allowed | Allowed |
| Perquisites for official purposes | Allowed | Allowed | Allowed | Allowed |
| Daily Allowance | Allowed | Allowed | Allowed | Allowed |
| Transport Allowance for specially-abled person | Allowed | Allowed | Allowed | Allowed |
| Gifts received from employers (Limit: ₹5000) | Allowed | Allowed | Allowed | Allowed |
| Other allowances including food allowance of Rs. 50/meal subject to 2 meals a day | Allowed | Not Allowed | Not Allowed | Not Allowed |
| Taxable income eligible for tax rebate | Rs. 5,00,000 | Rs. 5,00,000 | Rs. 7,00,000 | Rs. 7,00,000 |
| Maximum amount of tax rebate available | Rs. 12,500 | Rs. 12,500 | Rs. 25,000 | Rs. 25,000 |
| Standard Deduction | Rs. 50,000 | Not Allowed | Rs. 50,000 | Rs. 75,000 |
| Interest available on home loan under Section 24b on self-occupied or vacant property | Rs. 2,00,000 | Not Allowed | Not Allowed | Not Allowed |
| Interest available on home loan under Section 24b on let-out property | Allowed as per the interest amount | Allowed as per the interest amount | Allowed as per the interest amount | Allowed as per the interest amount |
| Deduction under Section 80C (Investment in LIC, EPF, PPF, Tax Saving FD’s etc.) | Rs. 1,50,000 | Not Allowed | Not Allowed | Not Allowed |
| Employee’s self contribution to NPS (Section 80CCD(1B)) | Rs. 50,000 | Not Allowed | Not Allowed | Not Allowed |
| Employer’s contribution to NPS (Section 80CCD(2)) | Allowed | Allowed | Allowed | Allowed |
| Contributions to Agniveer Corpus Fund – Section 80CCH | Entire amount that has been contributed | Did not exist | Entire amount that has been contributed | Entire amount that has been contributed |
| Deduction on medical insurance premium under Section 80D | Rs. 25,000/Rs. 50,000 | Not Allowed | Not Allowed | Not Allowed |
| Interest on education loan – deduction under Section 80E | Allowed as per the interest on loan amount | Not Allowed | Not Allowed | Not Allowed |
| Interest on electrical vehicle – deduction under Section 80EEB | Allowed as per the interest on loan amount | Not Allowed | Not Allowed | Not Allowed |
| Donation to trusts – deduction under Section 80G | If made in cash – Rs. 2000 (max) Others – any amount | Not Allowed | Not Allowed | Not Allowed |
| Donation to political parties – deduction under Section 80GGB/GGC | Any amount donated (apart from cash) | Not Allowed | Not Allowed | Not Allowed |
| Deduction on Savings Bank Account Interest under Section 80TTA/TTB | Rs. 10,000 / Rs. 50,000 | Not Allowed | Not Allowed | Not Allowed |
| Deductions to individuals with disability under Section 80U | Rs. 75,000 / Rs. 1,25,000 | Not Allowed | Not Allowed | Not Allowed |
| Other deductions | Allowed | Not Allowed | Not Allowed | Not Allowed |
List of exemptions and deduction not available under New Tax Regime
For individuals below 60 years and HUFs
- House Rent Allowance (HRA),
- Leave Travel Assistance (LTA) and even some of the allowances allowed for performing duties.
- Deductions available under Section 80C (comprised of various items like EPF, LIP, School Fee, PPF, NSC, ELSS, home loan repayment etc.) ,
- Deductions under Section 80 CCD(1) & Section 80 CCD(1B) (for NPS)
- Deductions under Section 80D (for health insurance premiums) ,
- Deductions for home loan interest for self-occupied (Section 80EEA)
- Setting off or carrying forward the loss in respect of let out property.
- Setting off of any brought forward losses against current income under new scheme.
For Senior Citizens above 60 years:
- All of the above
- However, deduction limit under Section 80TTB for interest from post office and banks is up to Rs. 50,000
Income Tax Slab under the Old & New Tax Regime
How the Tax Regime scheme works?
The new tax regime can be opted only by individuals and HUFs. There is no fixed formula to state that a particular tax regime will suit a particular category of individual. This is so because the tax benefits varies from person to person. However, looking at the tax benefits which majority of the taxpayer have to forgo, the benefits available with existing regime outweigh the benefits of lower rates of tax by migrating to new regime. This can be well understood with the help of illustration for salaried and self employed individuals.
Also Read: 10 ways to save your taxes
Illustration
| Particulars/Name | Sharukh | Salman | Abhishek | Ranbir |
|---|---|---|---|---|
| Tax Regime | Old Tax Regime | New Tax Regime | Old Tax Regime | New Tax Regime |
| Income from Salary | Rs. 10,00,000 | Rs. 10,00,000 | Rs. 15,00,000 | Rs. 15,00,000 |
| Standard Deduction | (Rs. 50,000) | (Rs. 75,000) | (Rs. 50,000) | (Rs. 75,000) |
| Section 80C deductions | (Rs. 1,50,000) | N/A | (Rs. 1,50,000) | N/A |
| Employer’s contribution toward NPS u/s 80CCD) | (Rs. 50,000) | (Rs. 50,000) | (Rs. 50,000) | (Rs. 50,000) |
| Net Taxable Income | Rs. 7,50,000 | Rs. 8,75,000 | Rs. 12,50,000 | Rs. 13,75,000 |
| Income Tax Liability | Rs. 72,500 | Rs. 39,000 | Rs. 2,02,500 | Rs. 1,19,600 |
From the above illustration, following can be inferred:
– If the individual or HUF has lots of exemptions & deductions at his hand, then he must go for old tax regime. This is so because if he opts for new tax regime, then he will have to forgo all or majority of them.
– If the individual or HUF has no or less exemptions & deductions to avail, then he must opt for new tax regime.
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