Old Vs New Income Tax Regime: Which One Should You Choose?
The Indian Government levies income tax on taxpayers depending on their income level. It is applicable when the income of taxpayers exceeds the basic exemption limit. However, our Government has revised the new income tax regime from the financial year 2023-24 and has declared it the default tax regime from April 1, 2023.
With the new income tax regime comes the confusion of which one to choose. The new regime is beneficial for some, and for some, the old one. Therefore, you must know everything about the old versus new income tax. (source - https://incometaxindia.gov.in/Tutorials/2%20Tax%20Rates.pdf)
What are the Tax Rates in Old Versus New Income Tax Regime?
The Union Government introduced new income tax slabs in the 2020 budget. The amounts of payable tax in these slabs are lower than in the old tax slabs. Nevertheless, some deductions and exemptions are removed from this new tax regime. Let’s compare the tax rates in both regimes.
Old Vs New Income Tax Slab Rates - FY 2023-24
Below is a table to elaborate on the new regime u/s115BAC versus old regime of income tax for people below 60 and NRIs:
Income Tax Slab For Individuals and HUF
Below is a table to elaborate on the new regime versus old regime of income tax for people below 60 and HUFs:
| Annual Income (below 60 years of age) | Old Tax Regime Rates - FY 2023-24 | New Tax Regime Rates - FY 2023-24 |
| ₹0 - ₹2,50,000 | NIL | NIL |
| ₹2,50,000 - ₹3,00,000 | 5% | NIL |
| ₹3,00,000 - ₹5,00,000 | 5% | 5% |
| ₹5,00,000 - ₹6,00,000 | 20% | 5% |
| ₹6,00,000 - ₹7,50,000 | 20% | 10% |
| ₹7,50,000 - ₹9,00,000 | 20% | 10% |
| ₹9,00,000 - ₹10,00,000 | 20% | 15% |
| ₹10,00,000 - ₹12,00,000 | 30% | 15% |
| ₹12,00,000 - ₹12,50,000 | 30% | 20% |
| ₹12,50,000 - ₹15,00,000 | 30% | 20% |
| More than ₹15,00,000 | 30% | 30% |
Income Tax Slab For Senior Citizens
| Annual Income (between 60 and 80 years of age) | Old Tax Regime Rates - FY 2023-24 | New Tax Regime Rates - FY 2023-24 |
| ₹ 0 - ₹3,00,000 | NIL | NIL |
| ₹ 3,00,000 - ₹ 5,00,000 | 5% | 5% |
| ₹ 5,00,000 - ₹6,00,000 | 20% | 5% |
| ₹ 6,00,000 - ₹ 9,00,000 | 20% | 10% |
| ₹ 9,00,000 - ₹ 10,00,000 | 20% | 15% |
| ₹10,00,000 - ₹12,00,000 | 30% | 15% |
| ₹12,00,000 - ₹15,00,000 | 30% | 20% |
| More than ₹ 15,00,000 | 30% | 30% |
Income Tax Slab For Super Senior Citizens
| Annual Income (above 80 years of age) | Old Tax Regime Rates - FY 2023-24 | New Tax Regime Rates - FY 2023-24 |
| ₹ 0 - ₹3,00,000 | NIL | NIL |
| ₹3,00,000- ₹5,00,000 | NIL | 5% |
| ₹5,00,000 - ₹6,00,000 | 20% | 5% |
| ₹ 6,00,000 - ₹9,00,000 | 20% | 10% |
| ₹ 9,00,000 - ₹10,00,000 | 20% | 15% |
| ₹ 10,00,000 - ₹12,00,000 | 30% | 15% |
| ₹12,00,000 - ₹15,00,000 | 30% | 20% |
| More than ₹ 15,00,000 | 30% | 30% |
What are the Exemptions and Deductions in Old and New Income Tax Regimes?
The meaning of “exemption” is that a taxpayer is unbound to pay tax up to a certain income level. At the same time, “Deduction” means debiting certain investments and expenses from a taxpayer’s income to calculate the taxable income.
These exemptions and deductions are not identical in new and old income tax regimes. The existing or old tax regime had 120 exemptions and deductions, most of which complicated the tax calculation. Therefore, the Ministry of Finance repealed 70 of those, keeping 50 available.
The table below shows the comparison of exemptions available in the new tax regime and in the old tax regime for both FY 2022-23 and FY 2023-24:
| Available Tax Exemptions/ Deductions | Old Tax Regime | New Tax Regime FY 2022-23 |
New Tax Regime FY 2023-24 |
| Income tax rebate up to | ₹ 5 lakhs | ₹ 5 lakhs | ₹ 7 lakhs |
| Standard Deduction | ₹ 50,000 | No | ₹ 50,000 |
| Rebate u/s 87A | ₹12,500 | ₹12,500 | ₹25,000 |
| HRA Exemption | Yes | No | No |
| Leave Travel Allowance (LTA) | Yes | No | No |
| Other allowances including food allowance of Rs 50/meal subject to 2 meals a day | Yes | No | No |
| Entertainment Allowance and Professional Tax | Yes | No | No |
| Perquisites for official purposes | Yes | Yes | Yes |
| Interest on Home Loan u/s 24b for self-occupied or vacant property | Yes | No | No |
| Interest on Home Loan u/s 24b for let-out property | Yes | Yes | Yes |
| Deductions u/s 80C | Yes | No | No |
| Employee's (own) contribution to NPS | Yes | No | No |
| Employer's contribution to NPS | Yes | Yes | Yes |
| Medical insurance premium u/s 80D | Yes | No | No |
| Allowance for disabled individuals u/s 80U | Yes | No | No |
| Interest on education loan u/s 80E | Yes | No | No |
| Interest on electric vehicle loan u/s 80EEB | Yes | No | No |
| Donation to political party/trust etc. u/s 80G | Yes | No | No |
| Savings bank interest u/s 80TTA and 80TTB | Yes | No | No |
| All contributions to Agniveer Corpus Fund - 80CCH | Yes | Did not exist | Yes |
| Deduction on family pension income | Yes | Yes | Yes |
| Gifts upto Rs 5,000 | Yes | Yes | Yes |
| Exemption on voluntary retirement 10(10C) | Yes | Yes | Yes |
| Exemption on gratuity u/s 10(10) | Yes | Yes | Yes |
| Exemption on leave encashment u/s 10(10AA) | Yes | Yes | Yes |
| Daily allowance by employers | Yes | Yes | Yes |
| Conveyance allowance | Yes | Yes | Yes |
| Transport allowance for a specially-abled person | Yes | Yes | Yes |
| Other Chapter VI-A deductions | Yes | No | No |
(source - https://incometaxindia.gov.in/Tutorials/2%20Tax%20Rates.pdf)
Which Among the Old and New Income Tax Regimes is Better?
Comparing old versus new income tax to consider the better and more beneficial one is hard.
Pros and Cons of Old Tax Regime
| Old Tax Regime | |
| Pros | Cons |
| The old tax regime encouraged individuals towards investments in specified tax instruments. | The tax benefits were available for a certain period of 3 to 5 years. Therefore, it was not an appropriate option for millennials as they tend to spend frit and save. It was also unsuitable for senior citizens who preferred liquid money or investing in open-ended instruments. |
| It ingrained an intent of savings in taxpayers, which was beneficial in an emergency and inflation. | Investors had no choice but to invest in specified instruments under tax benefits. Therefore, they could not invest in better-performing instruments even if they wanted. |
| More beneficial for taxpayers with income on the higher side. | The proceedings of the old tax regime used to demand documents and proof of investments. |
Pros and Cons of New Tax Regime
| New Tax Regime | |
| Pros | Cons |
| There are more slabs with lower tax rates in the revised tax regime. | The new tax regime removed many exemptions and deductions, which are available in the old one. |
| More beneficial for taxpayers with income on the lower side. | The overall taxable amount is increased. |
| The basic exemption limit under the new tax regime is hiked to ₹3 lakhs, which is ₹50,000 more than the old tax regime. | Taxpayers investing in tax saving schemes will suffer due to no benefits available. |
| With reduced tax rates, liquidity will increase. | Real estate sector may suffer because taxpayers will be more hesitant to invest in it as no exemptions are available. |
| Investors can now opt for better-performing investment instruments, rather than just tax-saving investments. They also don’t have to worry about the lock in period of their funds. |
People with business income have limited flexibility in choosing the new regime as it is the default regime now. |
How to Choose Between the New and Old Income Tax Regime?
Taxpayers often wonder how to choose between old and new tax regimes. You must calculate your payable tax in both regimes to determine which is more beneficial. Below are some scenarios of individuals with different incomes and investments. The calculations show the comparison of new and old income tax slabs for a particular income.
Scenario 1:
Annual income = ₹ 8,00,000
The expense for Life Insurance premiums (per annum) = ₹ 35,000
Contribution towards EPF (per annum) = ₹ 25,000
Calculation of Net Taxable Income - FY 2023-24
| Particulars | Old Tax Regime | New Tax Regime |
| Annual Income | ₹ 8,00,000 | ₹ 8,00,000 |
| Standard Deduction | ₹ 50,000 | ₹ 50,000 |
| Annual expense for Life Insurance premiums (under section 80C) | ₹ 35,000 | - |
| EPF Contribution (under section 80C) | ₹ 25,000 | - |
| Total Deduction | ₹ 1,10,000 | ₹ 50,000 |
| Net Taxable Income | ₹ 6,90,000 | ₹ 7,50,000 |
Income Tax Calculation (Old Versus New Income Tax Regime) - FY 2023-24
| Tax Slab | Tax (According to Old Rate) | Tax Slab | Tax (According to New Rate) |
| ₹ 0 – ₹ 2,50,000 | 0 | ₹ 0 – ₹3,00,000 | 0 |
| ₹ 2,50,000 – ₹ 5,00,000 | ₹ 12,500 | ₹3,00,000 - ₹6,00,000 | ₹ 15,000 |
| ₹ 5,00,000 – ₹10,00,000 | ₹ 38,000 | ₹6,00,000 - ₹9,00,000 | ₹ 15,000 |
| Total Taxes | ₹ 50,500 | Total Taxes | ₹ 30,000 |
| Cess (4%) | ₹ 2,020 | Cess (4%) | ₹ 1200 |
| Net Payable Tax | ₹ 48,480 | Net Payable Tax | ₹ 31,200 |
In this scenario, choosing the new regime is a wise decision for the taxpayer.
The following scenario shows the old versus new income tax rate if the annual income is above ₹ 15 lakhs.
Scenario 2:
Annual income = ₹ 18,00,000
Expense for Life Insurance premiums (per annum) = ₹ 135,000
Contribution towards EPF (per annum) = ₹ 150,000
Calculation of Net Taxable Income - FY 2023-24
| Particulars | Old Tax Regime | New Tax Regime |
| Annual Income | ₹ 18,00,000 | ₹ 18,00,000 |
| Standard Deduction | ₹ 50,000 | ₹ 50,000 |
| Annual expense for Life Insurance premiums (under section 80C) | ₹ 1,35,000 | - |
| EPF Contribution (under section 80C) | ₹ 1,50,000 | - |
| Total Deduction | ₹ 3,35,000 | ₹ 50,000 |
| Net Taxable Income | ₹ 14,65,000 | ₹ 17,50,000 |
Income Tax Calculation (Old Versus New Income Tax)- FY 2023-24
| Tax Slab | Tax (According to Old Rate) | Tax Slab | Tax (According to New Rate) |
| ₹ 0 – ₹ 2,50,000 | ₹ 0 | ₹ 0 – ₹3,00,000 | ₹ 0 |
| ₹ 2,50,000 – ₹ 5,00,000 | ₹ 12,500 | ₹3,00,000 - ₹6,00,000 | ₹ 15,000 |
| ₹ 5,00,000 – ₹10,00,000 | ₹ 1,00,000 | ₹6,00,000 - ₹9,00,000 | ₹ 30,000 |
| More than ₹ 10,00,000 | ₹13,950 | ₹9,00,000 - ₹12,00,000 | ₹ 45,000 |
| ₹12,00,000 - ₹15,00,000 | ₹ 60,000 | ||
| More than ₹15,00,000 | ₹ 75,000 | ||
| Total Taxes | ₹ 1,26,450 | Total Taxes | ₹ 2,25,000 |
| Cess (4%) | ₹ 5,058 | Cess (4%) | ₹ 9,000 |
| Net Payable Tax | ₹ 1,31,508 | Net Payable Tax | ₹ 2,34,000 |
In this scenario, the old regime becomes more beneficial for the taxpayer.
Thus, here is a final breakdown of calculations to help you choose the right income tax regime for FY 2023-24:
- Choose the new tax regime if your total deductions are ₹1.5 lakhs or less.
- Choose the old tax regime if your total deductions are more than ₹3.75 lakhs.
- If your total deductions are between ₹1.5lakhs and ₹3.75 lakhs, choose the tax regime depending on your income level.
Hence, you must consider all your deductions and exemptions before choosing between old versus new income tax. Calculate the net taxable amount after all exemptions and deductions under the old regime. If the amount is lower than the amount under the new regime, choosing the old one is wise and vice-versa.
FAQs about Old vs New Income Tax Slabs
Can I claim 80C deduction and opt for the new tax regime?
No, you cannot claim any deduction under section 80C while opting for the new income tax regime. The Indian Government has removed almost 70 exemptions and deductions, and section 80C is among those.
My salary is ₹10 lakhs. Which tax regime is better for me?
If you have an income of ₹10 lakhs with tax savings deductions, other than standard deductions, of over ₹2,62,500, you should choose the old tax regime. However, if you do not have total tax saving investments up to ₹2,62,500, then the new regime is better for you.
Who introduced the new IT regime in India and when?
The Union Government of India introduced a new IT regime in the budget 2020 for the financial year of 2020-21, and revised the new tax slabs again in Budget 2023.
Is the new income tax regime optional?
No, the new income tax regime is proposed as the default tax regime, applicable from April 1, 2023.
Can I switch between the old and new income tax regimes in a financial year?
According to income tax laws, salaried taxpayers can opt for the old tax regime at the time of filing their Income Tax Return (ITR), in a financial year. However, individuals with business income cannot change the tax regime once they have chosen at the beginning of the financial year.