Old vs. New Tax Regime: Which One Should You Choose in FY 2024-25?
The Indian tax system offers two distinct tax regimes: the Old Tax Regime and the New Tax Regime under Section 115BAC. With every financial year, taxpayers face the dilemma of choosing the regime that best suits their financial profile. For FY 2024-25, the Central Board
of Direct Taxes (CBDT) has released Circular No. 03/2025, which provides updated tax slabs, rebates, and exemptions. This article will help you make an informed decision by comparing tax rates, deductions, exemptions, and real-life scenarios.
1. Comparison of Tax Rates Under Both Regimes
Old Tax Regime (with deductions and exemptions)
The Old Tax Regime allows taxpayers to claim various deductions and exemptions, such as HRA, standard deduction, Section 80C investments, and more. The tax slabs remain as follows:
|
Income Range |
Tax Rate |
|
Up to ₹2,50,000 |
0% |
|
₹2,50,001 - ₹5,00,000 |
5% |
|
₹5,00,001 - ₹10,00,000 |
20% |
|
Above ₹10,00,000 |
30% |
Additionally, taxpayers with taxable income up to ₹5 lakh can claim a rebate under Section 87A, reducing their tax liability to zero.
New Tax Regime (Default from FY 2023-24)
The New Tax Regime, introduced to simplify taxation, offers lower tax rates but eliminates most deductions and exemptions. The revised tax slabs for FY 2024-25 are:
|
Income Range |
Tax Rate |
|
Up to ₹3,00,000 |
0% |
|
₹3,00,001 - ₹7,00,000 |
5% |
|
₹7,00,001 - ₹10,00,000 |
10% |
|
₹10,00,001 - ₹12,00,000 |
15% |
|
₹12,00,001 - ₹15,00,000 |
20% |
|
Above ₹15,00,000 |
30% |
A rebate under Section 87A applies to individuals with taxable income up to ₹7 lakh, making their tax liability zero.
2. Analysis of Rebates, Deductions, and Exemptions
Old Tax Regime Benefits:
- Deductions available: Standard deduction (₹50,000), 80C (₹1.5 lakh), 80D (Health Insurance), HRA, LTA, and others.
- Exemptions: House Rent Allowance (HRA), Leave Travel Allowance (LTA), and professional tax deductions.
- Best suited for: Individuals with high investments in tax-saving instruments (PPF, EPF, insurance, etc.).
New Tax Regime Benefits:
- Lower tax rates for middle-income earners.
- Higher tax-free income limit (₹3 lakh compared to ₹2.5 lakh in the old regime).
- Simpler taxation with fewer compliance requirements.
- Best suited for: Individuals with minimal tax-saving investments and high disposable income.
3. Case Studies of Different Salary Brackets
Case 1: Salaried Individual Earning ₹6 Lakh Per Annum
|
Regime |
Tax Payable
(after deductions) |
|
Old Regime (with deductions of ₹2 lakh) |
₹1,02,500 |
|
New Regime |
₹1,35,000 |
Conclusion: Both regimes result in zero tax due to Section 87A rebate. However, if an individual has significant deductions, the Old Regime may offer additional savings.
Case 2: Salaried Individual Earning ₹12 Lakh Per Annum
|
Regime |
Tax Payable
(after deductions) |
|
Old Regime (with deductions of ₹2 lakh) |
₹1,02,500 |
|
New Regime |
₹1,35,000 |
Conclusion: The Old Regime is more beneficial if deductions exceed ₹2 lakh. Otherwise, the New Regime is simpler and offers comparable tax liability.
Case 3: Salaried Individual Earning ₹20 Lakh Per Annum
|
Regime |
Tax Payable
(after deductions) |
|
Old Regime (with deductions of ₹2.5 lakh) |
₹4,29,000 |
|
New Regime |
₹4,42,500 |
Conclusion: High-income earners with significant deductions may prefer the Old Regime, but the New Regime offers simplicity.
4. Pros and Cons of Each Regime
Old Tax Regime
Pros:
- Higher deductions and exemptions.
- Lower tax liability for individuals with significant investments.
- Suitable for salaried individuals with HRA, 80C, and other deductions.
Cons:
- More documentation and compliance.
- Higher tax rates compared to the New Regime.
New Tax Regime
Pros:
- Lower tax rates for middle-income earners.
- No need to invest compulsorily in tax-saving instruments.
- Less paperwork and easier tax filing.
Cons:
- No deductions for investments, insurance, or HRA.
- May not be beneficial for individuals with tax-saving expenses.
5. Expert Recommendations for Salaried Individuals
When to Choose the Old Tax Regime?
- If you claim deductions exceeding ₹2-2.5 lakh (e.g., 80C, 80D, HRA, etc.).
- If you have substantial housing loan interest deductions (Section 24(b)).
- If you prefer structured tax savings through investments.
When to Choose the New Tax Regime?
- If you have minimal deductions and prefer lower tax rates.
- If you want a simple, hassle-free tax system.
- If your taxable income is below ₹7 lakh, since you’ll pay zero tax.
Conclusion: Making the Right Choice
The choice between the Old vs. New Tax Regime depends on your income level, deductions, and financial goals. If you have high investments in tax-saving options, the Old Tax Regime remains beneficial. However, if you seek simplicity and lower tax rates, the New Tax Regime is ideal, especially for those earning up to ₹7 lakh.
To optimize tax savings, individuals should calculate their tax liability under both regimes before filing their Income Tax Return (ITR). Consulting a tax professional can further help in making an informed decision.
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