Old Regime and New Regime of Income Tax: Key Snapshots

Income tax filing in India bears a different look these days, specifically after the introduction of the new tax regime. Since its introduction in the Union Budget 2020, most taxpayers have had a detailed look at the new regime and compared it to the old one.

As the new income tax filing season approaches, let us refresh our mental notes and have a look at the different aspects related to both regimes.

A New Look at the New Regime

The interim budget of 2024 didn’t propose any changes in direct taxes. However, the earlier budgets had several announcements which should be looked at before filing this year’s return.

The new tax regime is the default tax regime

Taxpayers can continue to opt for the old regime

The new regime offers a tax rebate on income of up to ₹7 lakhs. Therefore, there is no tax liability for taxpayers with income of ₹Rs 7 lakhs or less

The tax exemption limit of ₹2.5 lakhs has been increased to ₹3 lakhs in the new regime

The standard deduction of ₹50,000 is now available under the new tax regime as well

The highest surcharge rate of 37% has been reduced to 25% in the new regime

Taxpayers opting for the new regime must refer to the revised tax slabs as mentioned below,

• Up to ₹3 lakh: Nil
• ₹3 lakh-₹6 lakh: 5%
• ₹6 lakh-₹9 lakh: 10%
• ₹9 lakh-₹12 lakh: 15%
• ₹12 lakh-₹15 lakh: 20%
• Above ₹15 lakh: 30%

Important Preconditions Under the New Tax Regime

Taxpayers filing income tax returns under the new tax regime must remember that –

Income is calculated without considering the following deductions and exemptions,

• Chapter VI A, except for sections 80CCD and 80JJAA
• Section 35/35AD/35CCC
• Clause (iia) of section 57
• Section 24b
• Clause (5)/(13A)/(14)/(17)/(32) of Section 10/10AA/16
• Section 32(1)/32AD/33AB/33ABA

Income is calculated without losses from previous years that were a result of the abovementioned deductions or losses from house property

Deductions or exemptions related to perquisites or allowances are not considered for income calculation

Depreciation as per clause (iia) of section 32 cannot be claimed while calculating the income

What’s Allowed and What’s Not Allowed

In the new tax regime, there are limits to what you can claim as an allowable deduction, exemption, allowance or perquisite. The ones that are allowed are mentioned below,

Transport allowances for a specially-abled person

Conveyance allowance received against conveyance expenses as part of the employment

Compensation against the cost of travel on tour or transfer

Daily allowance for regular expenditure incurred due to absence from the regular place of duty

Perquisites for official purposes

Exemption on voluntary retirement 10(10C), gratuity 10(10) and leave encashment 10(10AA)

Interest on home loan on let-out property

Gifts of up to Rs 50,000

Employer’s contribution to NPS account

Deduction for additional employee cost

Standard deduction of Rs 50,000

Deduction of family pension income

Amount paid or deposited in the Agniveer Corpus Fund

Here are the various allowances and deductions that you cannot claim under the new tax regime,

Deduction under Section 80TTA/80TTB

Professional tax and entertainment allowance on salaries

Leave Travel Allowance

House Rent Allowance

Allowances to MPs/MLAs

Minor child income allowance

Helper allowance

Children education allowance

Other special allowances under section 10(14)

Additional depreciation under section 32(1)(iia)

Section 32AD, 33AB, 33ABA deductions

Deductions for donation for or expenditure on scientific research

Deduction under section 35AD or 35CCC

Interest on housing loan on self-occupied property or vacant property

Any other perquisites or allowances

Employee's contribution to NPS

Donations to Political parties/trust, etc.

Exemption under section 10AA for SEZ units

Individuals and HUFs also cannot set off their brought forward business losses and unabsorbed depreciation

It must be noted that deductions related to the ones that are withdrawn under the new regime are not available.

The Old Tax Regime: A Snapshot

The old tax regime has a comparatively higher (stricter) tax slab and rates. However, unlike the new regime, it is eligible for various deductions and exemptions. The most popular among them is the section 80C deductions which can be claimed up to a maximum of Rs 1.5 lakhs. Other eligible deductions and exemptions include contributions to NPS, medical insurance premiums, donations to eligible entities, education loan interest repayment, house rent allowance, leave travel allowance, etc. The old regime has over 70 different exemptions and deductions that a taxpayer can utilise as a part of the tax planning exercise.

Final Thoughts

The old regime is tailor-made to accommodate tax-friendly investments and expenses as a part of your financial planning. The new regime offers lower tax rates. However, this doesn’t necessarily mean that if you have a lot of tax-friendly investments you must automatically choose the old regime. There is a break-even point in the “taxable income-deductions” relationship. For instance, if your tax deduction is ₹2.5 lakhs, the old regime is recommended if your taxable income from salary is up to ₹10 lakhs. Beyond ₹10 lakhs, the new regime would be profitable. So, make sure you do your comparative calculation and choose the tax regime carefully.

https://cleartax.in/s/old-tax-regime-vs-new-tax-regime
https://cleartax.in/s/section-115bac-features-new-tax-regime-benefits
https://www.business-standard.com/finance/personal-finance/income-tax-allowances- deductions-allowed-for-individuals-in-old-tax-regime-124031500294_1.html