New vs. Old Tax Regime – Which one is better?

New vs. Old Tax Regime

In India, for the assessment year (AY) 2023-24, individual taxpayers have the option to choose between two tax regimes: the existing tax regime (also known as the "Old Regime") and the new tax regime (also known as the "New Regime").

Old Regime: Under the old tax regime, taxpayers can continue to avail various deductions, exemptions, and allowances available under the Income Tax Act, such as deductions for home loan interest, medical expenses, education expenses, etc. These deductions help reduce the taxable income and can potentially result in lower tax liability.

New Regime: The new tax regime introduced in Budget 2020 offers lower tax rates but eliminates most deductions and exemptions. Taxpayers under this regime cannot claim deductions for investments made under various sections of the Income Tax Act, such as Section 80C (for investments in provident fund, life insurance, etc.), Section 80D (for health insurance premiums), Section 24(b) (for home loan interest), etc.

Now, which regime is better for an individual depends on various factors, including their income level, investment portfolio, and specific deductions they can claim.

• If an individual has significant deductions and exemptions that can substantially reduce their taxable income, they might be better off under the old tax regime, as it allows them to take advantage of those deductions and potentially lower their tax liability.

• On the other hand, if an individual's deductions are relatively minimal, or they prefer a simplified tax structure with lower tax rates, they might consider opting for the new tax regime.

To determine which regime is more beneficial, it's recommended to calculate tax liability under both regimes based on your specific income, deductions, and exemptions. Comparing the tax liability will help you make an informed decision about which regime is more advantageous for you. It's advisable to consult a tax professional or use online tax calculators to perform these calculations accurately.

EXEMPTIONS and DEDUCTIONS 

(not available under New Regime) –

Ø  Leave Travel Allowance (LTA),

Ø  House Rent Allowance (HRA), etc

Ø  All Deductions (except Deduction U/s 80CCD(2) & 80JJAA)

Even the Following will also be disallowed

• Standard Deduction under Section 16 --- Which is currently Rs 50,000 available to salaried individuals.

• Deduction on home loan interest U/s 24(b).

In short, we can say that Around 70 exemptions and deductions have been removed (i.e. will not be allowed) in the New Tax Regime.

You can calculate you tax by INCOME TAX CALCULATOR