Old vs New Income Tax Regime: Which will turn out to be beneficial for whom after Budget 2024 announcements?

It leaves open questions about which of these tax structures is going to be more favourable to various categories of taxpayers under Budget 2024 radical changes in the income-tax regime.

Finance Minister Nirmala Sitharaman has changed the tax slab and given exemptions to the different strata of taxpayers. This can be further debated to determine which would be beneficial for a particular individual depending upon his or her own circumstances.

New income tax regime: Highlights and considerations

Under the new income tax regime effective from April 1, 2024, the basic exemption limit remains at ₹3 lakh, meaning income up to this amount is not subject to tax. The revised tax slabs are structured as follows:

• Income from ₹3 lakh to ₹7 lakh: Taxed at 5%
• Income from ₹7 lakh to ₹10 lakh: Taxed at 10%
• Income from ₹10 lakh to ₹12 lakh: Taxed at 15%
• Income from ₹12 lakh to ₹15 lakh: Taxed at 20%
• Income above ₹15 lakh: Taxed at 30%

The Finance Minister tweaked slab rates slightly for the new tax regime, however, keeping the highest slab at 15 lakhs like before. Moreover, the standard deduction for the new tax regime was increased to ₹75,000 from ₹50,000 earlier. However, there is no change in the old tax regime, whatsoever, further signalling that the Government might be looking to phase out the old tax regime in near future.

The question now becomes which tax regime might be better for you as an individual taxpayer. That depends on the deductions you are claiming. Are you claiming full HRA? Are you investing the full amount under section 80C? Do you have an education loan? Do you have a home loan? Are you paying for medical insurance?

If the answer to all or most of the above is Yes, then for most of the higher income levels, the old tax regime may continue to be better for you. However, if none of the above deductions are applicable to you, then you may consider getting into, or continuing, a new tax regime, according to Vaibhav Jain, Head of Business - Equities at Share.Market.

Meanwhile, Lohit Bhatia, President of the Indian Staffing Federation, points out that the new regime, despite lower exemptions, offers substantial benefits to young professionals and those entering the job market. For instance, individuals earning around ₹7.5 lakh per annum could see zero taxes under this regime, making it particularly attractive for lower income brackets.

Old income tax regime: Applicability and advantages

Contrary to the new regime, the old income tax structure continues to allow for various deductions under sections such as HRA, 80C investments, medical insurance premiums, education loan interest, and charitable donations. Chintak Shah, Vice President at Anand Rathi Wealth Limited, emphasises that for individuals availing substantial deductions—exceeding ₹4.3 lakh—the old regime may still offer greater tax savings.

For example, deductions under section 80C alone can amount to ₹1.5 lakh annually, significantly reducing taxable income. Moreover, deductions for HRA (House Rent Allowance) and medical insurance can further lower the tax liability, making the old regime preferable for those with considerable investment in such avenues.

Choosing between the regimes: Factors to consider

It largely depends on the personal financial situations and the available deductions within which one falls to settle for either of the regimes.

• Deductions and investments: If you are already availing deductions like HRA, 80C investments or have significant medical or education expenses you might be paying less taxes by sticking with the old regime.
• Savings or simplicity: The new regime offers a saving with fewer deductions, and may be more helpful to those who do not have to use all of the available deductions under the old regime.
• Income level: The new tax slabs could be less hospitable for higher-income earners than under the old regime as tax rates tend to be increased more sharply in the ₹15 lakh and above slab.
• Long-term planning : Consider long-term financial goals and likely change in income levels, which may impact the tax liability under both regimes.

The new tax regime is simpler and may bring lower taxes for some people, especially those with moderate incomes and fewer deductions. However, the old regime still favours people who have big tax-saving investments and expenses. The decision is then made in consultation with a financial advisor based on one's individual financial situation and goals.