By now, many of you have likely reviewed the 2024 budget announcement concerning personal tax and may be wondering which tax regime is more advantageous and what deductions are available under the new tax regime. Let’s delve into the details to clarify these aspects, keeping in mind that the best choice may vary depending on different income slabs.
To recap, the recent budget has increased the standard deduction under the new tax regime to ₹ 75,000. The family pension deduction has also been increased from ₹ 15,000 to ₹ 25,000. With the revised tax structure the taxpayer will save ₹17,500.
Table 1: Old and new tax regime:
Difference Between Old vs. New Tax Regime:
The decision to switch to the new regime or remain in the old one should be based on the tax savings, deductions, and exemptions you are eligible for under the old tax regime. To simplify this decision, we have presented a breakeven point for various income levels for a salaried individual below 60 years of age. This can help you determine which regime to choose.
Table 2: New Vs Old Tax Regime – Break even for salaried person:
- If your deductions/allowances are more than the break-even amount – The old tax regime is beneficial.
- If your deductions/allowances are less than the break-even amount – The new tax regime is beneficial.
- If your deductions/allowances including standard deduction aggregate to the break-even amount, you will pay an equal amount of tax under both regimes.
* Deductions /allowances include but are not limited to 80C, 80D, HRA, 80G, LTA exemption, Interest on housing loans, and education loans.
**Table 2 -content: With due credits to CA Nitesh G Buddhadev
Now let us see the deductions available in both the old and new tax regime:
Here is a comparison between the deductions and exemptions available under the new and the old tax regime:
Conclusion:
Both the old and new tax regimes have their advantages and disadvantages. The old tax structure encourages saving habits, while the new tax structure favors employees with lower earnings and fewer investments by offering fewer deductions and exemptions.
Choosing the better tax regime depends on individual income and applicable deductions. It’s essential to compare both regimes thoroughly to determine which one offers the most benefits.
As your thinking partner, we gaining ground would suggest all the taxpayers consider a few points below to make an informed decision with their money:
- Plan Your Taxes Early: Create a tax plan for the next financial year at the beginning of the year.
- Stay Informed About Tax Laws: Keep yourself updated on the latest tax laws and regulations to take advantage of any new benefits or changes.
- Avoid Poor Investment Choices to Reduce Tax: While minimizing tax payments is important, making investment decisions solely to avoid taxes is not advisable. Ensure that the chosen investment avenues provide reasonable returns, are easy to manage, and are tax-efficient. Always consult with your investment advisor before making any decisions.
- Consider Professional Help: If you find tax planning complex, consider seeking help from a professional tax advisor or financial planner.