One of the important questions while filing ITR (Income Tax Return) is Which is better Old vs New Tax Regime? Why New tax regime was introduced and is old tax regime still beneficial? We will answer all these queries in this post.
If you can make maximum investments or deductions under various sections, Old Tax Regime is better for you since you will be paying less income tax after claiming majority of the deduction options. But on the other hand if you don’t make any investments or claim deductions than New Tax Regime is better for you to pay less income tax. Old Tax Regime allows you to claim deduction options whereas new tax regime does not allow deductions except standard deduction for employees and pensioners.
Old vs New Tax Regime Comparison Video
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You can make Rs. 6 Lakh of investments or deductions based on this article of how to save income tax. So even if your income is Rs. 11 Lakh in FY 2024-25, your taxable income will be Rs. 5 Lakh based on Old Tax Regime on which you don’t have to pay any tax due to Tax Rebate under Section 87A.
Watch above video to see more examples on Old vs New Tax Regime.
What is Difference between Old Regime and New Regime?
There are 2 major differences between Old regime and New regime:
- New Tax Regime have reduced tax slab rates compared to Old Tax Regime
- New Tax Regime does not allow deductions (except Standard Deduction of Rs. 75,000 and few more deductions mentioned here), whereas old regime allows all other deductions to save income tax
Let us see the Slab Rates in both tax regimes:
Old Regime Tax Slab Rates
| Income | Tax Slab Rates (Old Tax Regime) |
|---|---|
| Rs. 0 – Rs. 2.5 Lakh | 0% |
| Rs. 2.5 Lakh – Rs. 5 Lakh | 5% |
| Rs. 5 Lakh – Rs. 10 Lakh | 20% |
| Rs. 10 Lakh or above | 30% |
So as seen above, if your income is above Rs. 10 Lakh in FY, you belong to 30% slab in India and pay tax according to income tax calculation.
Above slab rates belong to people of age within 60 years, read more about Income Tax Slab Rates 2024-25 to know more about senior citizens tax slab rates.
New Regime Tax Slab Rates
| Income | Tax Slab Rates (New Tax Regime) |
|---|---|
| Rs. 0 – Rs. 3 Lakh | 0% |
| Rs. 3 Lakh – Rs. 7 Lakh | 5% |
| Rs. 7 Lakh – Rs. 10 Lakh | 10% |
| Rs. 10 Lakh – Rs. 12 Lakh | 15% |
| Rs. 12 Lakh – Rs. 15 Lakh | 20% |
| Rs. 15 Lakh or above | 30% |
In New tax regime, the slab rates are reduced compared to old tax regime. But this comes with a condition that you cannot claim any deductions while calculating and paying income tax.
ALSO READ: How to Calculate Income Tax on Salary Payslip
Old vs New Tax Regime Calculator Online
You can easily calculate your income tax based on the Old vs New Tax Regime Calculator I have made for you online.
Use below calculator to check your income tax:
By using this income tax calculator, you can easily calculate your income tax and decide whether you should select old or new tax regime to calculate and pay income tax.
Below is the example of tax calculation on income = Rs. 10 Lakh in FY 2024-25 without any investments or deductions:
So you pay Rs. 1,06,600 tax with old tax regime and Rs. 44,200 with new tax regime. Standard Deduction of Rs. 50,000 is included in old tax regime and Rs. 75,000 is included in new tax regime, if salaried or pensioner option is selected.
Let us now see another example where you make more deductions – Rs. 1.5 Lakh in Section 80C, Rs. 1 Lakh as HRA (House Rent Allowance) and Rs. 50,000 in Section 80CCD(1B):
So as seen above, tax with Old tax regime is reduced to Rs. 44,200 and with new tax regime as well the income tax is Rs. 44,200.
And this is how you can take advantage to claiming more deductions to save income tax with old tax regime.
ALSO READ: All Deduction options for tax payers to save income tax
What is the benefit of new tax regime?
Even if we don’t get deduction options in new tax regime, it does not mean that new tax regime is of no use.
Below are some benefits of new tax regime:
- Standard deduction of Rs. 75,000 is available in new tax regime from FY 2024-25 onwards
- No tax on income up to Rs. 7.75 Lakh from FY 2024-25 onwards due to Standard Deduction and Tax Rebate in new regime
- Transport allowance can be claimed in case of specially-abled person
- Conveyance allowance for employees received to meet conveyance expenditures
- Compensation received for cost of travel or tour
- Daily Allowance received as compensation for cost of living in some other place compared to regular place of working
- Deduction for employer’s contribution in NPS Account under Section 80CCD(2)
Old vs New Tax Regime Which is Better?
So far we have understood that if we claim deductions, we can save more income tax with old tax regime. Let us take more examples to see more comparison stats.
Let’s say you make maximum deductions in various sections as mentioned below:
- Standard Deduction – Rs. 50,000
- Section 80C – Rs. 1,50,000
- Section 80D – Rs. 50,000
- Section 80CCD(1B) – Rs. 50,000
- HRA (House Rent Allowance) – Rs. 1,00,000
- Section 24 – Rs. 2,00,000
So total deductions is Rs. 6 Lakh.
Let’s use it to calculate tax and compare old and new tax regime with various incomes:
Income Tax with Old and New Tax Regime
| Income | Deductions | Tax with Old Tax Regime | Tax with New Tax Regime |
|---|---|---|---|
| Rs. 5,00,000 | Rs. 0 | Rs. 0 | Rs. 0 |
| Rs. 6,00,000 | Rs. 1,00,000 | Rs. 0 | Rs. 0 |
| Rs. 7,00,000 | Rs. 2,00,000 | Rs. 0 | Rs. 0 |
| Rs. 8,00,000 | Rs. 3,00,000 | Rs. 0 | Rs. 23,400 |
| Rs. 9,00,000 | Rs. 4,00,000 | Rs. 0 | Rs. 33,800 |
| Rs. 10,00,000 | Rs. 5,00,000 | Rs. 0 | Rs. 44,200 |
| Rs. 11,00,000 | Rs. 6,00,000 | Rs. 0 | Rs. 55,900 |
| Rs. 12,00,000 | Rs. 6,00,000 | Rs. 33,800 | Rs. 71,500 |
| Rs. 13,00,000 | Rs. 6,00,000 | Rs. 54,600 | Rs. 88,400 |
| Rs. 14,00,000 | Rs. 6,00,000 | Rs. 75,400 | Rs. 1,09,200 |
| Rs. 15,00,000 | Rs. 6,00,000 | Rs. 96,200 | Rs. 1,30,000 |
| Rs. 16,00,000 | Rs. 6,00,000 | Rs. 1,17,000 | Rs. 1,53,400 |
| Rs. 17,00,000 | Rs. 6,00,000 | Rs. 1,48,200 | Rs. 1,84,600 |
| Rs. 18,00,000 | Rs. 6,00,000 | Rs. 1,79,400 | Rs. 2,15,800 |
| Rs. 19,00,000 | Rs. 6,00,000 | Rs. 2,10,600 | Rs. 2,47,000 |
| Rs. 20,00,000 | Rs. 6,00,000 | Rs. 2,41,800 | Rs. 2,78,200 |
As seen above, with old tax regime you pay less income tax compared to new tax regime on almost all incomes.
For incomes below Rs. 11 lakh, it is not necessary to claim entire Rs. 6 Lakh as deduction, you only need to get taxable income to Rs. 5 lakh and make investments accordingly as mentioned in the table above.
Also, the deductions column above tells you how much you need to invest to pay less income tax in old tax regime, compared to new tax regime.
ALSO READ: Section 80C Deductions List
Why Old Tax Regime is Better?
Old Tax regime is clearly the winner here that’s because you get multiple options to save income tax while claiming deductions and saving for the future at the same time.
As seen in above table, making Rs. 6 lakh investments or deductions can help you pay less income tax with old tax regime on any higher income.
Old vs New Tax Regime Calculator Excel
Click below button to download the old vs new tax regime calculator in excel:
Conclusion
So we have seen with examples that old tax regime is better if you make investments or claim deductions.
But if you are a person who do not make any investment or deductions that new tax regime is better for you as it allows reduced tax slab rates compared to old tax regime.
It depends on you how much investments you can afford and calculate tax accordingly based on your income and investments. Use the income tax calculator to make this task more easy for you.
You can also watch below video on Income Tax Calculation Examples:
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Some more Reading:
- Rs. 2000 SIP vs Step up SIP Returns Calculation
- Income Tax on Short Term Capital Gains
- Compounding in Stock Market
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Use Retirement Excel Calculator that will help you to Retire Early.
Click below button to download Retirement Calculator in Excel:
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Income Tax Calculator App – FinCalC
For Income Tax Calculation on your mobile device, you can Download my Android App “FinCalC” which I have developed for you to make your income tax calculation easy.
What you can do with this mobile App?
- Calculate Income Tax for new FY 2024-25 and previous FY 2023-24
- Enter estimated Investments to check income tax with Old and New Tax Regime
- Save income tax details and track regularly
- Know how much to invest more to save income tax
- More calculators including PPF, SIP returns, Savings account interest and lot more
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