Budget 2024: Old tax regime vs new tax regime; which is better?

Old Tax Regime vs New Tax Regime: For taxpayers who file their income tax return (ITR) for the first time, or for the seasoned ones who have filed it multiple times, a question that often crops up is: should I pick the old tax regime or the new one?

The new tax regime was introduced in India in April 2020, while the new tax slabs were introduced in the 2021-22 annual budget.

The government, in the 2023-24 budget, however, made some changes in the new tax regime to encourage more people to opt for it.

The changes were- streamlined tax slabs, a higher tax rebate limit, a standard deduction, a family pension deduction, and a higher leave encashment exemption.

Even after the new tax regime, the government didn't abolish the old tax regime.

Income Tax Slabs

Rather, it gave taxpayers both the new and old tax regimes while filing taxes.

A lot of taxpayers still opt for the old tax regime.

However, many are confused about the selection between the new and the old.

The selection can depend on your deductions and exemptions.

For those who have invested their money in tax-saving schemes, the old tax regime comes handy, while for people with no investment in tax-saving schemes, the new tax regime can be better. 

While the tax rates prescribed for a taxpayer under the new tax regime are lower as compared to the old regime, the new regime comes with a cost.

Under the new tax regime, an individual taxpayer is required to forego certain tax deductions and exemptions like Section 80C, 80D, HRA exemption, etc.

Therefore, the choice between the old and new tax regimes can be made by an individual taxpayer after carefully going through various factors like investment preferences, the tax slab rate, and the quantum of deductions available under the old tax regime.

Generally, individuals falling under higher tax slabs and availing limited deductions and exemptions may prefer to opt for the new tax regime, while individuals with greater investments in tax saving instruments like the Provident Fund (PF), Public Provident Fund (PPF), Equity Linked Saving Schemes (ELSS), etc., may find the old regime more suitable.

So we see, when it comes to finalising the tax regime when filing ITR, there is no single answer or straight jacket formula that can be applied to all taxpayers.

It calls for a detailed comparative analysis by taxpayers to decide the regime that suits their requirements.

The income tax department has also brought out a tax comparison utility, which is available on its web portal.

Individual taxpayers can go through that before deciding on which regime is beneficial to them.