Key Differences Between Old and New Tax Regimes
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Key Differences Between Old and New Tax Regimes

 

1.     Tax Rates:

  • Old Regime: Higher tax rates with the benefit of various deductions and
  • New Regime: Lower tax rates but without deductions and exemptions like HRA, 80C,

2.     Deductions & Exemptions:

  • Old Regime: Includes deductions under 80C (up to Rs 5 lakh), 80D, HRA, LTA, and others.
  • New Regime: Lacks these deductions but offers a simplified tax

3.     Standard Deduction:

  • Available in both regimes post-Budget 2023, with Rs 50,000 standard deduction applicable to salaried

4.     Rebate and Tax Slabs:

  • New Regime: Provides a tax rebate for incomes up to Rs 7 lakh, making income up to this amount tax-free.
  • Old Regime: Offers a rebate for incomes up to Rs 5

5.     Leave Encashment:

  • New Regime: Increased exemption limit for non-government workers, up to Rs 25

6.     Surcharge Reduction:

  • New Regime: Lower surcharge for high-income individuals (income over Rs 5 crore), from 37% to 25%.

Advisory: Which Regime to Choose?

  • Low Deductions (< Rs 5 lakh): New regime is typically more beneficial due to lower tax rates.
  • High Deductions (> Rs 75 lakh): Old regime might be more advantageous, allowing more tax savings through exemptions.
  • Mid-range Deductions (Rs 5 lakh – Rs 3.75 lakh): Decision depends on specific financial situations; consult a tax advisor.

Practical Example:

For an income of Rs 8 lakh:

  • Old Regime Tax: Rs 65,000 (including cess)
  • New Regime Tax: Rs 31,200 (including cess)

The new regime offers simplicity and is favorable for those who do not heavily invest in

tax-saving instruments. On the other hand, the old regime encourages savings and investments through various deductions. Each taxpayer should analyze their financial situation to determine the most beneficial option.

Conclusion: There’s no one-size-fits-all answer. The choice between the old and new tax regimes depends on individual financial circumstances and preferences for deductions and exemptions.

 

MUKESH K SAXENA
M.Com, CAIIB
Chief AO & Fin. Advisor
Madhav University Abu Road
[ Ex. Sr.BM , Bank of Rajasthan ]
[ Ex. RBM , ICICI Bank ]
[ Ex. Branch Rel. Ambassador , AU Bank Chhabra ]