Tax outgo will be lower in the old regime with exemptions if you claim multiple, higher deductions, primarily for home loan interest or house rent allowance (HRA). For low-income earners and others with fewer deductions, the new, simplified regime is more advantageous.
Budget 2024 has improved the new, simplified income-tax regime significantly.
Taxpayers now have more incentives to switch to the new regime, with only those who avail of significantly higher deductions finding the old tax regime attractive.
Finance Minister Nirmala Sitharaman has liberalized income tax slabs under the simplified regime further, and increased the standard deduction from Rs 50,000 to Rs 75,000.
Essentially, salaried employees will benefit more from switching to the new tax regime unless they claim deductions up to Rs 2 lakh on home loan interest or qualify for substantial HRA. Without either of these, the old tax regime is less appealing.
Old Regime for Higher, Multiple Deductions For instance, a salaried employee with an income of Rs 11 lakh who claims deductions exceeding Rs 3,93,750 will have a lower tax outgo under the old regime. While it may be challenging for someone earning Rs 11 lakh to claim this level of deductions, a couple with dual incomes might manage higher deductions as shared household expenses leave more money for savings.
An individual with an income of Rs 60 lakh will also find the old regime preferable if they claim deductions over Rs 3,93,750.
New Regime Suitable for Low Earners and HNIs For those earning less than Rs 7 lakh, the simplified regime offers a rebate, reducing their tax outgo to zero. Salaried employees earning up to Rs 7.75 lakh will not have to pay any tax under the new regime, thanks to the higher standard deduction of Rs 75,000. In contrast, the old regime offers a lower tax rebate limit of Rs 5 lakh and an unchanged standard deduction of Rs 50,000.
Additionally, high-income earners, such as those earning Rs 6 crore, will benefit from the simplified regime due to a lower effective tax rate surcharge of 25% (effective tax rate of 39%). Under the old regime, the surcharge rate for incomes over Rs 5 crore is higher at 37% (effective tax rate of 42.74%).
In summary, the new simplified tax regime is generally more favorable for low-income earners and high-net-worth individuals (HNIs), while the old regime may still be beneficial for those with higher and multiple deductions.
Income Tax Return (ITR) Filings in India: A Comprehensive Guide
