OLD REGIME V/S NEW REGIME
The Indian income tax system provides tax payers with two regimes to choose from: the Old Regime and the New Regime. Each regimehas different tax rates, slabs, and available deductions. Here’s acomprehensive comparison of both regimes to help you understand their implications:
Old Regime vs. New Regime
1. Tax Rates and Slabs
Old RegimeTax Slabs for FY 2023-24:
| ||||||||||||||
| New Regime Tax Slabs for FY 2023-24: | ||||||||||||||
|
| ||||||||||||||
|
2. Deductions and Exemptions
Old Regime:
- Allows a variety of deductions and exemptions such as:
- Section 80C: Deductions up to INR 1.5 lakh for investments in PPF, EPF, life insurance premiums, ELSS, etc.
- Section 80D: Deductions for health insurance premiums.
- Section 24(b): Deductions for home loan interest.
- HRA (House Rent Allowance): Exemption for those paying rent.
- Standard Deduction: INR 50,000 for salaried individuals.
- Other Deductions: Various other deductions under sections 80E, 80G, 80TTA, etc.
New Regime:
- Does not allow most deductions and exemptions.
- Standard deduction of INR 50,000 is now allowed starting FY 2023-24.
- Simplified tax structure with lower rates.
3. Who Should Choose WhichRegime?
Old Regime:
- Beneficial for individuals who have significant deductions and exemptions.
- Suitable for those with high investments in tax-saving instruments and eligible for various exemptions.
New Regime:
- Suitable for individuals with fewer deductions and exemptions.
- Beneficial for those looking for a simplified tax filing process.
- Often advantageous for individuals with lower income or those who do not invest heavily in tax-saving instruments.
4. Comparison Examples
Example 1:
- Income: INR 8 lakh
- Deductions (Old Regime): INR 2 lakh (Section 80C + Section 24(b))
| Category | Old Regime | New Regime |
| Gross Income | INR 8 Lakh | INR 8 Lakh |
| Deductions | INR 2 Lakh | Nil |
| Taxable Income | INR 6 Lakh | INR 8 Lakh |
| Tax Payable (excluding cess) | INR 32,500 | INR 35,000 |
Example 2:
- Income: INR 10 lakh
- Deductions (Old Regime): INR 1.5 Lakh
| Category | Old Regime | New Regime |
| Gross Income | INR 10 Lakh | INR 10 Lakh |
| Deductions | INR 1.5 Lakh | Nil |
| Taxable Income | INR 8.5 Lakh | INR 10 Lakh |
| Tax Payable (excluding cess) | INR 82,500 | INR 60,000 |
5. Key Considerations
- Income Level: Higher income individuals with significant deductions benefit more from the Old Regime.
- Investment Habits: If you invest regularly in tax-saving instruments, the Old Regime may be more beneficial.
- Simplicity: The New Regime offers a simpler tax structure with fewer compliance requirements.
Choosing between the Old Regime and New Regimedepends on your individual financial situation, investment habits, and thedeductions you are eligible for. It’s often helpful to calculate your taxliability under both regimes before making a decision. Consulting a taxprofessional can also provide personalized advice based on your circumstances.
New Regime Default Status
From FY 2023-24 (AY 2024-25), the new tax regimeunder Section 115BAC is the default tax regime. Taxpayers must actively opt outif they prefer the old tax regime.
Opting Out Process
- For Individuals without Business Income:
- You can opt out of the new tax regime directly while filing your Income Tax Return (ITR). There's no need for an additional form if you do not have business or professional income.
- This can be done by selecting the old regime checkbox in ITR forms like ITR-1 and ITR-2.
- For Individuals with Business Income:
- To opt for the old tax regime, filing Form 10-IEA is mandatory before the due date specified under Section 139(1) of the Income Tax Act.
- Once you opt out of the new regime using Form 10-IEA, the choice remains unless you switch back, which can be done only once in a lifetime.
Filing and Deadlines
- Form 10-IEA: Must be submitted before filing your income tax return. The due date for filing this form is the same as the ITR filing deadline (usually 31st July for individuals).
- Late Returns: If you miss the ITR filing deadline but have submitted Form 10-IEA on time, you can still file a belated or updated ITR and pay taxes under the old regime.
Amendments and Simplifications
- Previously, taxpayers had to file Form 10-IE to choose the new tax regime. This has been replaced by Form 10-IEA for opting out of the new regime.
- The process has been streamlined to make it easier for taxpayers, especially those without business income, to switch regimes during ITR filing.
These changes aim to simplify the tax filingprocess and give taxpayers flexibility in choosing their preferred tax regimebased on their financial situation.
