In India, the Income Tax Act provides two distinct tax regimes for individuals and Hindu Undivided Families (HUFs): the Old Tax Regime and the New Tax Regime. The key difference between these two regimes lies in the tax slabs and the available deductions/exemptions. The new tax regime was introduced in the Budget 2020 as an optional tax structure, providing lower tax rates but with fewer exemptions and deductions. Here’s a detailed comparison of the two regimes: 1. Tax Slabs: Old Tax Regime (with deductions and exemptions): Under the old tax regime, taxpayers are entitled to claim various exemptions and deductions under different sections of the Income Tax Act (like Section 80C, 80D, etc.). The tax slabs are as follows: Income up to ₹2.5 lakhs: No tax Income from ₹2.5 lakhs to ₹5 lakhs: 5% of the income exceeding ₹2.5 lakh Income from ₹5 lakhs to ₹10 lakhs: 20% of the income exceeding ₹5 lakh, plus ₹12,500 Income above ₹10 lakhs: 30% of the income exceeding ₹10 lakh, plus ₹1,12,500 New Tax Regime (with lower rates, no exemptions/deductions): In the new tax regime, the tax rates are reduced, but taxpayers cannot claim most exemptions and deductions. The tax slabs are as follows: Income up to ₹2.5 lakhs: No tax Income from ₹2.5 lakhs to ₹5 lakhs: 5% of the income exceeding ₹2.5 lakh Income from ₹5 lakhs to ₹7.5 lakhs: 10% of the income exceeding ₹5 lakh, plus ₹12,500 Income from ₹7.5 lakhs to ₹10 lakhs: 15% of the income exceeding ₹7.5 lakh, plus ₹37,500 Income from ₹10 lakhs to ₹12.5 lakhs: 20% of the income exceeding ₹10 lakh, plus ₹75,000 Income from ₹12.5 lakhs to ₹15 lakhs: 25% of the income exceeding ₹12.5 lakh, plus ₹1,25,000 Income above ₹15 lakhs: 30% of the income exceeding ₹15 lakh, plus ₹1,87,500 2. Exemptions and Deductions: Old Tax Regime (with exemptions and deductions): Deductions under Section 80C, 80D, 80G, 80E, etc., are allowed. Some of the popular deductions are: Section 80C: Deductions for investments like PPF, EPF, tax-saving FD, life insurance premiums, etc. (up to ₹1.5 lakh) Section 80D: Deductions for health insurance premiums (up to ₹25,000 for self, spouse, children; ₹50,000 for senior citizens) HRA (House Rent Allowance): Can be claimed by salaried individuals who live in rented accommodation. Standard Deduction: ₹50,000 for salaried individuals and pensioners. Interest on Home Loan: Deductions under Section 24(b) for interest on home loan (up to ₹2 lakh). Other allowances/exemptions: Like Leave Travel Allowance (LTA), Gratuity, and more. New Tax Regime (without exemptions and deductions): No deductions or exemptions can be claimed under the new tax regime. This means you cannot claim the following: Section 80C deductions (e.g., PPF, insurance premiums) HRA (House Rent Allowance) Standard Deduction of ₹50,000 for salaried individuals Deductions for Health Insurance (Section 80D) Interest on Home Loan (Section 24(b)) and any other similar deductions 3. Tax Relief for Income up to ₹5 Lakhs: Old Tax Regime: Rebate under Section 87A: If your taxable income is less than ₹5 lakhs, you can avail of a rebate of ₹12,500, which effectively makes your tax liability zero (subject to meeting other conditions). New Tax Regime: Rebate under Section 87A: The same ₹12,500 rebate is available if your income is less than ₹5 lakhs. This makes the tax zero for those with income up to ₹5 lakhs in both regimes. 4. Applicability of Tax Regimes: Old Tax Regime is available for all individuals and Hindu Undivided Families (HUFs), with the ability to claim exemptions and deductions. New Tax Regime is available as an optional scheme for taxpayers, and once opted for, it cannot be changed during the same financial year. This means that you can choose the new regime if you find that the tax rates are beneficial despite the lack of deductions. 5. Comparison of Tax Calculation for Different Income Groups: Example 1: For income up to ₹5 lakhs Old Regime: No tax (because of the rebate under Section 87A) New Regime: No tax (because of the rebate under Section 87A) Both regimes result in zero tax for income up to ₹5 lakhs. Example 2: For income of ₹10 lakhs Old Regime: Taxable income after deductions (say, ₹1.5 lakh deduction under Section 80C for PPF, LIC, etc.) Effective Taxable Income: ₹8.5 lakh Tax on ₹8.5 lakh: ₹12,500 (5%) + ₹70,000 (20%) = ₹82,500 (before rebate) Tax payable: ₹82,500 (Less ₹12,500 rebate) = ₹70,000 New Regime: Tax on ₹10 lakh: ₹12,500 (5%) + ₹75,000 (10%) + ₹37,500 (15%) = ₹1,25,000 (no rebate) In this case, the Old Regime results in a lower tax liability due to deductions. 6. Choice of Tax Regime: Option for Salaried Individuals: Salaried individuals and pensioners can choose either the old or new regime at the time of filing the tax return. Once you choose, you cannot switch between the two regimes within the same financial year. However, you can change the tax regime in subsequent years. Option for Non-Salaried Individuals (e.g., Businesspersons): Individuals earning business income also have the option to choose between the old and new tax regimes. Conclusion: The Old Tax Regime is ideal for individuals who have significant deductions and exemptions to claim, like under Section 80C or for HRA. On the other hand, the New Tax Regime offers lower tax rates but removes most exemptions and deductions, making it suitable for individuals with fewer deductions or those who prefer a simpler tax structure. Old Regime: Higher tax rates but allows for multiple deductions and exemptions. New Regime: Lower tax rates but no deductions or exemptions. Ultimately, the choice between the two depends on your income structure, the number of deductions you can claim, and your personal preferences. You should calculate your tax liability under both regimes to determine which one is more beneficial for you.

Dear Client, In answer to your request here is what we see as the difference between the Old Tax Regime and the New Tax Regime:. 1. Old Tax System. Slab Rates: Higher tax taxes under the present system. Deductions & Exemptions: Taxpayers which include:. Section 80C (PPF, ELSS, LIC, etc.) Section 80D (medical insurance) House Rent Allowance (HRA) Leave Travel Allowance (LTA) Standard deduction, etc. Flexibility: Benefit from those who put in large sums into tax saving instruments and claim many exemptions. 2. New Tax System (introduced in FY 2020-21, revised in Budget 2023). Slab Rates: Reduced tax rates for all income groups. Deductions & Exemptions: Most of the deductions and exemptions are not available. Standard Deduction: From FY 2023-24 (Rs. 50,000 for salaried individuals and pensioners). Default Regime: From the 2023-24 fiscal year on the new regime is the default option which the taxpayer may choose out of the old one. Beneficial for: Individuals with limited investment and who do not claim many exemptions. I hope this answer resolve your quries for any further question, you can contact our firm. Thank you!