The 2024 Budget has made the new tax regime more attractive by altering the income tax slabs, offering greater tax relief compared to the old tax regime. Taxpayers currently using the old tax regime should assess whether to switch to the new tax regime for the financial year 2024-25 based on the deductions they can claim.
The decision to switch depends on whether a taxpayer’s deductible amount in the old regime exceeds the break-even levels listed below. If the deductions surpass the break-even levels, the old regime remains beneficial. If not, the new regime is more advantageous.
Here is a table indicating the minimum deductions required under the old tax regime to equal the tax payable under both regimes:
| Gross Income Level (Rs) | Minimum Deductions Required (Rs) | Tax Payable (Old Regime) | Tax Payable (New Regime) |
|---|---|---|---|
| 7.75 lakhs | 3,25,000 | – | – |
| 10 lakhs | 3,50,000 | 44,200 | 44,200 |
| 12.5 lakhs | 4,31,250 | 79,300 | 79,300 |
| 15.75 lakhs | 4,83,333 | 1,45,600 | 1,45,600 |
| 20 lakhs | 4,83,333 | 2,78,200 | 2,78,200 |
For tax calculations, the new tax regime considers a standard deduction of Rs 75,000 (as proposed in Budget 2024), while the old tax regime considers a standard deduction of Rs 50,000. The additional deductions in the old regime could include HRA tax exemption, LTA tax exemption, Section 80C, NPS investment deduction of Rs 50,000, Section 80D, and others.
For example, at an income level of Rs 10 lakh, the break-even deduction is Rs 3.5 lakh, including the Rs 50,000 standard deduction and Rs 3 lakh from other eligible deductions like HRA tax exemption and Section 80C.
Taxpayers should ensure their total deductions exceed these break-even levels to benefit from the old regime. If the deductions are lower, the new regime is more beneficial. Notably, the minimum required deduction increases with income levels but caps at Rs 4,83,333 for incomes above Rs 15.75 lakh.
Previously, for an income of Rs 20 lakh, a deduction of Rs 4.25 lakh was required to be tax neutral between regimes. This has increased by Rs 58,333 to Rs 4,83,333 post-Budget 2024.
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No changes have been made to the old tax regime’s rules, slabs, or rates. Changes to the new tax regime include:
- Revised income tax slabs.
- Increased standard deduction from Rs 50,000 to Rs 75,000.
- Increased family pensioners’ standard deduction from Rs 15,000 to Rs 25,000.
- Increased employer’s NPS contribution deduction from 10% to 14%.
These changes make the new tax regime more beneficial for taxpayers.