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Old Vs New Tax Regime: Which is Better for Salaried Individuals?

Updated on: 20 May, 2024 06:09 PM

How should I decide which is a better tax regime for me—old or new tax regime? What deductions will I get in old regime and how can I reduce my tax burden if I choose new tax regime?

Understanding the comparison of the old vs new tax regime in the FY 2023-24 (AY 2024-25) is crucial for you to get the answers of these questions and make informed choices for your income tax filing.

Budget 2023 came up with a lot of changes, with the main focus on making the new tax regime more attractive. The motive behind these changes was to encourage more and more taxpayers to adopt the new tax regime.

Let us look at both regimes and calculate and compare old and new tax regimes, and which regime will be the most beneficial to opt for in 2024.

Budget 2024 Updates
In the 2024 interim budget, no changes were made to taxation for FY 2024-25. Finance Minister Nirmala Sitharaman retained existing tax rates for direct and indirect taxes, i.e., the changes announced for FY 2023-24 will be continued. A full budget is anticipated in July after the new government is formed post Lok Sabha elections.

New Tax Regime

The new tax regime was introduced in budget 2020 with concessional tax rates. However, the taxpayers who opted for the new tax regime could not claim major deductions like HRA, LTA, 80C, and many others. This leads to a smaller number of taxpayers opting for this regime. Hence, in Budget 2023, to make the new tax regime more lucrative, the following key changes were introduced:-

  • Default Regime:- New tax regime is set as a default regime which means if you haven’t informed your employer about which regime to choose from, the TDS calculation will be done on the basis of the new tax regime only from FY 23-24.
  • Tax Rate:- The basic exemption limit under the new tax regime has been raised to Rs 3 lakh from Rs 2.5 lakh from FY 23-24 to make the new tax regime more attractive. Also, the highest tax rate of 30% will be levied above Rs 15 lakh income.
  • Rebate Limit:- The rebate under section 87A has been hiked to Rs 7 lakh from Rs 5 lakh under the new tax regime from FY 23-24. The rebate benefit will be up to Rs 25000, provided income doesn't exceed the limit of 7 lakhs.
  • Standard Deduction:- Individuals having salary income can claim a standard deduction of Rs. 50,000 from their gross salary income from FY 23-24. Family pensioners opting for the new tax regime can claim a standard deduction of Rs 15,000 from their pension income.
  • Slashed the surcharge limit:- Reduction in the surcharge on annual income above 5 crores from 37% to 25% under the new regime. The highest tax rate is 42.74%, which would slash the maximum tax rate to 39% after this reduction.
  • Leave encashment exemption:- The limit of Rs. 3 lakh for tax exemption on leave encashment on non-government salaried employees has been raised to Rs. 25 lakh.
  • Insurance plans:- As per the announcement in the Budget 2023-24, income from traditional insurance policies where the premium is more than Rs 5 lakh will not be tax-free.
  • Tax Slabs:- The new tax regime has reduced the income tax slabs from 6 to 5. The revised tax structure as per the new tax regime is:-

(Note:- The changes introduced in budget 2023 will remain the same even for FY 2024-2025 since no changes were made in the Interim Budget 2024)


Income Tax Slab Rate for New Tax Regime

Range of income Tax Rate
Upto 3,00,000 Nil
3,00,001-6,00,000 5%
6,00,001-9,00,000 10%
9,00,001-12,00,000 15%
12,00,001-15,00,000 20%
Above 15,00,001 30%

Old Tax Regime

The Old Tax Regime was introduced way before the new tax regime. Old Tax regime offers more than 70 deductions and exemptions to claims like Section 80C, HRA, LTA, and more.

You can read more about income tax slabs here.

The comparison for the tax rates is as follows:

Income Tax Slab Old Tax Regime New tax Regime (Before budget 2023) New Tax Regime (After Budget 2023)
₹0 - ₹2,50,000 - - -
₹2,50,001 - ₹3,00,000 5% 5% -
₹3,00,001 - ₹5,00,000 5% 5% 5%
₹5,00,001 - ₹6,00,000 20% 10% 5%
₹6,00,001 - ₹7,50,000 20% 10% 10%
₹7,50,001 - ₹9,00,000 20% 15% 10%
₹9,00,001 - ₹10,00,000 20% 15% 15%
₹10,00,001 - ₹12,00,000 30% 20% 15%
₹12,00,001 - ₹12,50,000 30% 20% 20%
₹12,50,001 - ₹15,00,000 30% 25% 20%
More than ₹15,00,000 30% 30% 30%

How to Choose Between Old and New Tax Regime?

When the employer asks for the investment declaration to deduct taxes on salary income, the individual must analyse the pros and cons of both the tax regimes before choosing one and informing the employer about it in April, otherwise, this may lead to a higher tax deduction from your salary income.

To decide between the two tax regimes, it's crucial to assess the tax exemptions and deductions available under the old tax regime. After determining the net taxable income under the old regime by accounting for all eligible deductions and exemptions, one can calculate the resulting tax liability. Use Tax2win’s old vs new tax regime calculator to calculate your tax liability under both regimes and find the one that suits you the best.

Next, this tax liability under the old tax regime should be compared with the tax liability under the new tax regime. Opting for the regime with the lower tax liability is typically the preferred choice. It's important to inform the employer of this decision so that they can adjust the TDS (Tax Deducted at Source) from the salary accordingly. This ensures that the correct amount of tax is deducted each month, aligning with the chosen tax regime and minimizing the chances of any tax dues or refunds at the end of the financial year.

Are you facing any challenges or have confusion about which tax regime to select from? Tax2win tax expert helps you calculate the tax liability, suggests you the best option as per your income and deductions and filing your ITR. Hire a tax expert.


Which Tax Regime is Better? New Regime vs Old Regime

This decision to switch between new or old tax regime depends on several factors like:-

  • Investment Goals- It is always advised to evaluate investment goals before selecting which tax regime to choose. The new tax regime suits you if you are flexible with your investments and looking forward to not investing in tax-saving instruments. However, If you have investment goals such as retirement savings or building a corpus for a long-term goal, the old tax regime may be more beneficial as it offers deductions for contributions to various investment instruments.
  • Simplicity- The new tax regime documentation process is simple, it eliminates the need to calculate and claim deductions and exemptions, which helps taxpayers to file the ITR quickly.
  • Income level- Under the new tax regime, the tax rates are lower than the old tax regime. The new tax regime may be more beneficial if you have a higher income. As per budget 2023, an individual with INR 9 lakh annual income will have to pay INR 45,000 as tax, which is 5% of the taxable income. This represents a reduction of INR 47,500 from the INR 92,500 tax liability that the same individual would have had under the old tax regime.
    Similarly, an individual with INR 15 lakh annual income will have to pay a tax of INR 1.5 lakh under the new tax rates introduced under budget 2023 for the new tax regime, which is a reduction from the earlier tax liability of INR 1.87 lakh calculated as per new tax regime rates before budget 2023. The reduction in tax liability is due to the lower tax rates under the new tax regime, which has revised tax slabs and rates to relieve taxpayers.
  • Deductions and exemptions- Under the old tax regime, you can avail of a deduction of Rs 1.5 lakh under Section 80C and Rs 2 lakh under Section 24(b) on the interest amount for self-occupied property. This means a straight deduction of Rs. 3.5 lakh can be availed under the old tax regime, while the new tax regime does not offer such deductions and exemptions.
    Particulars Old Regime New Regime
    Gross Salary 700,000 700,000
    Less: Standard deduction Yes Yes
    Net Salary
    Less: Deductions / Exemptions
    80C Deductions Yes No
    Interest on Home Loan Yes No
    80D Deductions/ All other Yes No
    Employee's Contribution under NPS Yes No
    Any Other deduction Yes No
    HRA / LTA / Other exemptions Yes No
    Total of all deductions/ exemptions Yes No
    Taxable Income 0 0

Breakeven Threshold to Decide which Regime to Choose: New vs Old Tax Regime

Budget 2023 proposes an increment in rebate under Section 87A for taxpayers opting for a new tax regime as per which taxpayers who earlier had to pay zero income tax on income up to Rs 5 lakh will now pay zero tax for income up to Rs 7 lakh.

Also, has extended a standard deduction of Rs. 50,000 for salaried individuals under the new tax regime.

As a result of deduction and rebate along with the tweak in income tax slab, salaried individuals will have to pay zero tax liability up to the income of Rs 7.5 lakh annually. Thus going for a new tax regime is very clear here.

For earnings above 7.5 lakh, we have calculated a breakeven point for various income levels. The break-even point is the amount where there will be no difference in tax liability between both regimes.

If your total eligible deductions and exemptions in the old regime are higher than the breakeven threshold for your income level, stick with the old regime. If the breakeven threshold is higher than your total eligible deductions and exemptions, the new regime may be more beneficial for you.

If you have salary income:

Income Level Break Even Point (BEP) of Deduction
up to 5 lac Nil
6 lac 1,00,000
7 lac 2,00,000
8 lac 2,12,500
9 lac 2,62,500
10 lac 3,00,000
11 lac 3,25,000
12 lac 3,50,000
13 lac 3,62,500
14 lac 3,75,000
15 lac 4,08,333
15.5 lac up to 5 crore 4,25,000
New vs Old Tax Regime Break Even Point

Have you also been stuck between the choice of a more beneficial tax regime?? Relax!! We have made it easier for you. Use our Old vs New Tax Regime Calculator.

Now that you have made your choice and selected the regime, the next step is calculating the tax liability as per the chosen regime and filing the ITR. Tax2win’s tax experts help you file an ITR while ensuring maximum savings and tax deductions. Hire an Online CA Now!


Frequently Asked Questions

Q- What is the old tax regime?

The old tax regime is the existing tax structure under which taxpayers can claim various deductions and exemptions under different sections of the Income Tax Act. It has a higher tax rate but allows taxpayers to claim tax benefits on various investments and expenses.


Q- What is the new tax regime?

The new tax regime is a simplified tax structure introduced in Budget 2020, under which taxpayers can pay lower taxes but have to forego maximum deductions and exemptions. The new tax regime has lower tax rates than the old regime but eliminates the tax benefits of various investments and expenses.


Q- Is new tax regime better for salaried employees?

The choice between the old and new tax regime depends on individual preferences and financial goals. The new regime offers lower tax rates but fewer deductions and exemptions compared to the old regime. Salaried employees should evaluate their specific circumstances and consult with a tax expert to determine which regime is more beneficial for them.


Q- Can I switch between the old and new tax regime?

Yes, taxpayers can switch between the old and new tax regime every year at the time of filing their tax returns. However, once you opt for the new tax regime for a year, you cannot claim any tax benefits available in the old tax regime.Also, for individuals with income from business and profession, the tax regime opted for in the previous tax returns also applies to the subsequent years.


Q- Are there any limitations to the new tax regime?

Yes, the new tax regime does not allow taxpayers to claim deductions under section 80C, 80D, 80E, 80G, and others. It also eliminates the tax benefits of maximum exempt allowances like House Rent Allowance (HRA) and leave travel allowance (LTA) etc.


Q- Can I claim deductions under both the old and new tax regimes?

No, you cannot claim deductions under both the old and new tax regimes for the same financial year.


Q- Which tax regime should I choose if my income is 7 lakhs?

In case of an income of 7 lakhs, the new tax regime is most likely the better option for the financial year 2023-24 (Assessment Year 2024-25). Here's why:

Benefits of new tax regime for income of 7 lakhs:

  • No tax: Individuals with taxable incomes of up to 7 lakhs are eligible for a full tax rebate under Section 87A, effectively paying no income tax under the new regime.
  • Standard deduction: You still get the benefit of a standard deduction of Rs 50,000 on salary income in the new regime.
  • Simplified tax slabs: New tax regime has fewer tax brackets with lower rates for income ranging from 6 to 9 lakhs.

Q- Which tax regime is more beneficial for me if my salary is 10 lakhs?

Generally, the new tax regime is beneficial if:

  • Your total deductions (excluding standard deduction) are less than Rs. 1.5 lakhs.
  • You have minimal investments in tax-saving schemes.
  • You prioritize ease of tax filing over potential tax savings.

On the other hand, the old tax regime might be better if:

  • Your total deductions (excluding standard deduction) are more than Rs. 2.62 lakhs.
  • You have invested heavily in tax-saving schemes and claim various deductions.
  • You don't mind the extra effort of filing complex tax returns for potential tax savings.

Q- Which tax regime is more suitable for me if my income is 12 lakhs?

New tax regime:

  • Simpler: No exemptions or deductions allowed, just a slab-based system with lower tax rates.
  • Lower tax for less deductions: If your total deductions are less than Rs. 3 lakh, the new regime will likely lead to lower taxes.
  • Limited flexibility: Fewer options for tax planning and wealth creation.

Old tax regime:

  • More complex: Allows various deductions and exemptions for things like house rent, health insurance, investments, etc.
  • Potentially lower tax with high deductions: If you can claim deductions exceeding Rs. 3 lakh, the old regime might be more beneficial.
  • Greater flexibility: Offers more avenues for tax planning and wealth accumulation.

Q- Which tax regime is more advantageous for me if my income is 15 lakhs?

The choice between the two regimes depends on your tax-saving investments and expenses. If you have made tax-saving investments of more than Rs. 3,58,000, you may be better off with the old regime. You may benefit from the new regime if you have made tax-saving investments of less than Rs. 3,58,000.


Q- Which tax regime is more favorable for me if my income is 20 lakhs?

Generally, if your deductible investments and expenses exceed Rs. 3,75,000 per year, the old regime could be more beneficial.

If your deductions are limited or negligible, the new regime might be simpler and more efficient.


Q- Which tax regime is more optimal for me if my income is 25 lakhs?

Generally, the new regime is more beneficial unless you utilize deductions exceeding Rs 3.75 lakhs.

Utilizing maximum deductions under 80C, 80D, etc., can bring your taxable income under the lower slabs in the old regime, leading to a lower tax burden.


Q- Which tax regime is more preferable for me if my income is 30 lakhs?

Generally, the new regime is more beneficial even without claiming any deductions. This is because the tax rate for the highest income slab in the new regime (30%) is lower than the highest tax rate in the old regime (30%).


Q- Which tax regime is more profitable for me if my income is 50 lakhs?

The New tax regime is better for a salary of Rs 50 lakhs, saving you Rs 525000.00.

Here's a comparison of the tax liabilities under both regimes:

Tax Regime Tax Payable
New Regime Rs 12,50,000
Old Regime (with a maximum deduction of Rs 3.75 lakhs) Rs 17,75,000

The new regime offers a significant tax saving of Rs 5,25,000 even without claiming any deductions. This is because the highest tax rate in the new regime (30%) is lower than the highest tax rate in the old regime (30%).

Therefore, if you have a salary of Rs 50 lakhs, the new tax regime is better for you.

Here are some additional factors to consider:

  • If you have investments or expenses that are eligible for deductions under the old regime, you may be able to save even more tax by opting for the old regime.
  • The old regime may also be beneficial if you are planning to retire soon, as you may be in a lower tax bracket in your retirement years.

CA Abhishek Soni
CA Abhishek Soni

Abhishek Soni is a Chartered Accountant by profession & entrepreneur by passion. He is the co-founder & CEO of Tax2Win.in. Tax2win is amongst the top 25 emerging startups of Asia and authorized ERI by the Income Tax Department. In the past, he worked in EY and comes with wide industry experience from telecom, retail to manufacturing to entertainment where he has handled various national and international assignments.