Whether you are a professional or a business owner, paying your taxes is mandatory. Your tax percentage will depend upon the tax slab you belong to. So, understanding the differences between the new vs old tax regime will help you pay taxes properly.

According to the new tax regime, your income won’t be taxable if you earn 3 lakhs per annum. Taxes are applicable beyond that income slab. This benefit wasn’t present in the old tax regime.

This article will explore all such differences between the two taxation systems.

Features of the Old Tax Regime

The old tax regime is the set of rules and regulations taxpayers followed before the new regime launched. This system’s main highlight was the facility to reduce your taxable income.

There are around 70 deductions and exemptions under this system to help you save taxes. The popular investment options for deducting the salary include –

• Public Provident Fund
• National Pension Scheme investment
• Health insurance policy premiums
• Life insurance premiums
• Home loan principal and interest
• Children’s tuition fee
• Senior Citizens Savings Scheme

The exemptions applicable to the old regime are –

• Company leased car
• House rent allowance
• Food vouchers or coupons
• Internet and mobile reimbursement
• Leave Encashment

Some advantages of the old tax regime are –

• Section 80C offers tax savings of up to 1.5 lacks for investments like insurance, ELSS, pension plans etc.
• Citizens having a low annual income are relieved under this regime
• Helps inculcate a habit of investments to build wealth

Features of the New Tax Regime

The government of India launched the new tax regime during Budget 2020, which offered revamped tax slabs. However, due to the various tax slabs, you can't enjoy the deductions and exemptions of the old regime.

This means you cannot avail of the benefits of the house rent allowance (HRA), leave travel allowance (LTA) and other related exemptions. That's why many taxpayers didn't accept the new tax regime positively.

To make things simpler and more flexible, you can switch to the old tax regime if you wish. You have to submit Form 10IE to switch between the old and new tax regime.

The Income Tax Department has made the new tax region the default option from FY 2023-24. Let's look at the different tax slabs under this new system –

This regime provides tax exemption up to an annual income of 3 lakhs, benefiting several middle-class families. The other advantages you must know are –

• You'll receive a complete tax rebate up to an income of 7 lakhs per annum, where the limit was 5 lakhs previously
• You can apply for a standard deduction of INR 50,000 along with the rebate
• Family pensioners are eligible for a standard tax deduction of INR 15,000 or 1/3rd of the pension amount

The Bottom Line

The decision between the new tax regime vs old regime depends upon your income and financial needs. If you want to enjoy deductions and exemptions and earn above 2.5 lacks, the old regime will be ideal. It also supports ELSS or pension-based tax savings.

However, if you earn 3 LPA and want better rebates, go for the new regime. If you’re having trouble managing tax payments and other expenses, try Fi Money’s Analyser. This AI-powered tool helps in expense tracking, budgeting tips and credit reports.

Frequently Asked Questions

1. Are There Any Deductions In New Tax Regime?

Yes, deductions are available for salaried individuals and family pensioners. Deductions mentioned in the old regime aren’t available.

2. Which Tax Regime Is Better, New Or Old?

Choosing the new or old tax regime depends on your income and tax-saving goals.