Budget 2024: How to choose between old, new tax regimes
The Union Budget 2024, presented by Finance Minister Nirmala Sitharaman, has introduced modifications to the new tax regime. These changes could potentially allow salaried individuals to save up to ₹17,500 annually. However, financial experts suggest that the old tax regime may still be more beneficial for individuals with higher incomes and higher tax deductions. Let's compare the two tax regimes.
Comparing the new and old tax regimes
The old tax regime offers over 70 exemptions and deductions, including house rent allowance (HRA), leave travel allowance (LTA), and a popular deduction under Section 80C that allows a reduction of taxable income up to ₹1.5 lakh. In contrast, the new tax regime, introduced in the 2020 Budget, simplifies tax filing by eliminating these exemptions and deductions while offering reduced rates. Sitharaman's recent changes to this new regime aim to further benefit salaried employees.
Revised tax slabs and deductions
In her budget speech, Sitharaman announced an increase in the standard deduction for salaried employees from ₹50,000 to ₹75,000 under the new tax regime. She also revised the tax slabs: no tax for those earning up to ₹3 lakh; 5% for earnings between ₹3-7 lakh; 10% for ₹7-10 lakh; 15% for ₹10-12 lakh; 20% for ₹12-15 lakh; and finally, a rate of 30% applies to incomes above ₹15 lakh. These changes will be effective from April 1, 2024.
Concerns with the new tax regime
Under the revised tax regime, those in the highest income bracket— earning above ₹15 lakh—will save ₹7,500 due to the increased standard deduction limit. Additionally, rate rationalization will lead to savings of ₹10,000, totaling an annual saving of ₹17,500. However, financial experts caution that this new tax regime may not be beneficial for all taxpayers. Those with higher tax deductions might find the incentives offered by the old tax regime more attractive.
Government encourages new tax regime
While the government is encouraging taxpayers to opt for the new tax regime, individuals should consider their income and potential deductions before making a decision. According to moneycontrol.com, if a salaried person earning ₹11 lakh a year claims deductions of more than ₹3,93,750, they will pay less tax under the old tax system. People who can claim up to ₹2 lakh on home loan interest or receive a large house rent allowance (HRA) should also choose the old tax system.
Situation where old tax regime would be better
For someone earning ₹60 lakh a year, the old tax system is better if they can claim deductions worth more than ₹3,93,750. However, for those with very high incomes, like ₹6 crore, the new tax system is better. Experts say the old tax system offers breaks for things like health insurance premiums, children's school fees, investments under Section 80C, and house rent. So, if you spend money on these things, the old tax system will save you more money.
