Comparing New vs. Old Tax Regimes, Which Income Tax Regime Is Best For You?

The income tax office has enabled e-filing forms for ITR-1, ITR-2, and ITR-4, marking the beginning of the online filing of income tax returns (ITR) for AY 2024–25 (or FY 2023–24). Taxpayers must select between the new and old income tax regimes when submitting their ITRs. In both regimes, there are differences in the tax rates and advantages. Here are all the specifics of the regimes, tax rates, and decision-makers.

Finance Minister Nirmala Sitharaman raised the income tax exemption limit in the Budget 2023 to Rs 3 lakh under the new tax regime. She also increased the rebate under Section 87A of the Income Tax Act, 1961 from Rs 5 lakh to Rs 7 lakh, meaning that individuals making up to Rs 7 lakh are exempt from paying any tax under the new regime.

Income Tax Rates for FY2023-24 (AY 2024-25):

In addition, there is a 4% income tax for health and education. The choice between the existing and new tax regimes is available to taxpayers. The new tax system would be the default plan.

A resident individual who makes no more than Rs 7 lakh in net income may be eligible for a refund under section 87A of the new tax law. The rebate is for Rs 25,000 or 100% of income tax, whichever is less.

In the previous tax system, a resident individual taxpayer may claim a section 87A refund if their net income did not exceed Rs 5 lakh. The rebate is equal to either Rs 12,500 or 100% of income tax, whichever is less.

New Regime Vs Old Regime: Which One Should You Choose?

Experts in income taxation say that the new tax system is advantageous if you have no savings, investments, or deductions. If you have, though, the previous system may be more alluring.

While many of the exemptions and deductions that were offered under the previous tax regime are no longer accessible, the new tax regime does provide reduced tax rates. The previous tax system, on the other hand, had higher tax rates but greater exemptions and deductions.

Before choosing a choice, it is advised to assess your financial situation, taking into account your taxable income, deductions, and exemptions. To assist you choose which tax system would be best for you, you might also choose to speak with a tax expert. The decision between the new and old tax regimes will ultimately be based on your financial circumstances and tax liabilities, they stated.

However, in general, the tax experts advised people with incomes up to Rs 7 lakh to apply for the new tax system immediately because there will be no income tax.