When submitting the Income Tax Return (ITR) for the Financial Year (FY) 2023-24, taxpayers are presented with the choice of selecting between the new and old tax regimes, each with distinct tax rates and benefits. The commencement of ITR e-filing for the Assessment Year (AY) 2024-25 has been announced, with forms ITR-1, ITR-2, and ITR-4 now available online. This selection between the new and old tax regimes is crucial as it affects the tax rates and advantages applicable to the taxpayer.
| INCOME TAX SLAB (IN RS) | OLD TAX REGIME | NEW TAX REGIME |
| 0-2,50,000 | 0% | 0% |
| 2,50,001-3,00,000 | 5% | 0% |
| 3,00,001-5,00,000 | 5% | 5% |
| 500,001-6,00,000 | 20% | 5% |
| 6,00,001-9,00,000 | 20% | 10% |
| 9,00,001-10,00,000 | 20% | 15% |
| 10,00,001-12,00,000 | 30% | 15% |
| 12,00,000-15,00,000 | 30% | 20% |
| 15,00,0001 & Above | 30% | 30% |
In the 2023 Budget, the Finance Minister, Nirmala Sitharaman, announced adjustments to the new tax regime, including an increase in the income tax exemption limit to Rs 3 lakh and a rise in the rebate under Section 87A from Rs 5 lakh to Rs 7 lakh. This means individuals earning up to Rs 7 lakh annually are not liable to pay tax under the new regime. It’s worth noting that for senior citizens (60 years and above), the old regime offers an exemption on income up to Rs 3,00,000, and for super senior citizens (80 years and above), the exemption limit is Rs 5,00,000.
Additionally, a health and education cess of 4% is applied to the income tax under both regimes. Taxpayers have the flexibility to opt for either the old or new tax regime, with the new regime being the default choice.
Under the new tax regime, individuals with a net income not exceeding Rs 7 lakh can benefit from a rebate under section 87A, which covers 100% of the income tax or Rs 25,000, whichever is less. In contrast, under the old regime, individuals with a net income up to Rs 5 lakh can also avail of a rebate under section 87A, but the rebate amount is limited to 100% of the income tax or Rs 12,500, whichever is lower.
Choosing Between New and Old Regimes: Which is Better?
The decision between the new and old tax regimes depends significantly on individual financial situations. The new regime may be more appealing for those without savings, investments, or deductions due to its lower tax rates but lacks exemptions and deductions available under the old regime. Conversely, the old regime might be more attractive for individuals who can take advantage of various savings, investments, and deductions, despite its higher tax rates.
It’s advisable to carefully assess your financial circumstances, including taxable income, deductions, and exemptions, before making a decision. Consulting with a tax professional can also provide clarity on which regime may offer more benefits based on your specific financial and tax scenarios. Generally, individuals with an income up to Rs 7 lakh are recommended to opt for the new tax regime for a zero income tax liability, according to tax experts.
