Know All Important Information About Old Tax Regime And New Tax Regime

Old Tax Regime

The old regime is the Tax regime that prevailed before the introduction of the new tax regime system. There are over 70 exemptions and deductions available under Old Tax Regime, including HRA and LTA, which can reduce your taxable income and tax payments. The most popular and generous deduction is Section 80C, which allows a reduction in taxable income of up to Rs 1.5 lakh. Taxpayers can choose between the old and new tax system.

New Tax Regime

The New Tax Regime in India for the financial year 2024-25 (AY 2025-26) offers lower tax rates but eliminates most deductions and exemptions. It has a six-tier structure, with income up to ₹3 lakh being tax-free and a maximum tax rate of 30% on income above ₹15 lakh. A refund under Section 87A exempts income up to ₹7 lakh from tax, and a standard deduction of ₹50,000 is offered for salaried employees and pensioners. The system is currently standard, but taxpayers can opt for the old system if they prefer deductions such as 80C, 80D, and HRA benefits.

List of some Exemptions and Deductions in the Old Tax Regime

Here is the (non-exhaustive) list of exceptions:

• Holiday travel allowance 
• House rental subsidy
• Deductions under Section 80TTA/80TTB (on interest on savings account deposits)
• Entertainment and Business Income Tax Deduction (for Government Employees)
• Tax relief on interest paid on mortgage loans for owner-occupied or unoccupied properties u/s 24
• Deduction of Rs 15,000 from family pension allowed under clause (ii a) (Article 57)

Tax reliefs for investments under Chapter VI-A (80C, 80D, 80E, 80CCC, 80CCD, 80D, 80DD, 80DDB, 80EE, 80EEA, 80EEB, 80G, 80GG, 80GGA, 80GGC, 80IA, 80-IAB, 80- IAC, 80-IB, 80-IBA, etc.) (Except deduction under Section 80CCD(2) – Employer’s contribution to NPS and Section 80JJA) and so on. Some of these popular tax saving investment options include ELSS, NPS, PPF and tax relief on insurance premiums.

Claim deductions under Section 80CCD(2) for employer NPS contributions and Section 80JJAA for new employment

Employee contributions to EPF and NPS exceeding Rs 7.5 lakh in a financial year will be taxable

How to Calculate Income Tax Liability under Old Tax Regime

Income tax rates under the old system remain unchanged. Employed taxpayers can claim various deductions and exemptions in 2024/25. The new tax system only allows the two mentioned deductions and exemptions, eliminating many previously available ones

By availing deductions like Section 80C, Section 80D, HRA tax exemption, etc., one can reduce his taxable gross income and hence his income tax liability.

Remember that under the old tax system, income tax rates had different income tax rates depending on the age of the person in a financial year.

Below is an example of how to calculate income tax payable under the old tax system.

Suppose a person below 60 years of age has a total gross income of Rs 17 lakh for the current financial year i.e. h. for fiscal year 2024-25 (April 1, 2024-March 31, 2025). A natural person has opted for the old tax regime for the current year. You can claim the following tax exemptions and deductions: Section 80C allows you to deduct up to Rs 1.5 lakh, Section 80CCD(1b) lets you invest Rs 50,000 in NPS, and Section 80D allows a deduction of Rs 25,000 for health insurance premiums you pay.

80TTA of Rs 10,000 on interest earned on savings account.

Particulars	Amount (in Rs)
Gross total income	17,00,000
Section 80C	(1,50,000)
Section 80 CCD(1b) NPS investment	(50,000)
Section 80D – medical insurance premium	(25,000)
Section 80TTA	(10,000)
Net taxable income	14,65,000

After deducting deductions from total gross income, the net taxable income is Rs 14,65,000.The tax authorities calculate the tax payable based on the net taxable income

As per the income tax rate table, the first 2.5 lakh net taxable income is exempt from tax. The current income tax rates state that the tax authorities do not collect tax on income up to Rs 2.5 lakh in the old tax system. After that, you need to calculate tax on the remaining income of Rs 12,15,000 (14,65,000-2,50,000). In the second part of the income tax slab, the government taxes income between Rs 2.5 lakh and Rs 5 lakh at a rate of 5%. This means that out of Rs 12,15,000, the next Rs 2,50,000 will be subject to 5% tax. The tax amount is Rs 12,500.

Now the remaining income that is still taxable is Rs 9,65,000. The government taxes the income between Rs 5 lakh and Rs 10 lakh at a rate of 20%. This means that out of Rs 9,65,000, Rs 5,00,000 will be subject to 20% tax. The tax payable here is Rs 1,00,000.

The tax calculation is based on a residual income of Rs 4,65,000. The tax amount for this residual income (Rs 14,65,000 minus Rs 10,00,000) will be calculated using the last slab, which is more than 10 lakh rupees with a tax rate of 30%. The amount of tax payable is Rs 1,39,500.

Therefore, the total tax payable by an individual is Rs 2,52,000 (Rs 12,500 + Rs 1,00,000 + Rs 1,39,500).

Particulars	Income (Rs)	Tax amount (Rs)
Net taxable income	14,65,000	–
Income exempt up to Rs 2,50,000	(2,50,000)	0
Income which is still chargeable to tax (Rs 14,65,000 – 2,50,000)	12,15,000	–
Income tax slab of Rs 2.5 lakh and up to Rs 5 lakh	(2,50,000)	@ 5% =12,500
Income which is still chargeable to tax (Rs 12,15,000 – 2,50,000)	9,65,000	–
Income tax slab of Rs 5 lakh up to Rs 10 lakh	(5,00,000)	@20% = 1,00,000
Income which is still chargeable to tax (Rs 9,65,000 – 5,00,000)	4,65,000	–
Income tax slab of above Rs 10 lakh	(4,65,000)	@ 30% =1,39,500
Total income tax liability	–	2,52,000
Cess at 4% on total income tax payable (i.e. on Rs 2,52,000)	–	10,080
Final income tax liability (inclusive of cess)	–	2,62,080

Please note that duties and surcharges also apply to the income tax payable. A rate of 4% will be levied and a surcharge will be levied if the total income exceeds Rs 50 lakh.

As per the above example, the deductible is Rs 10,080. The surcharge is not applicable as the net taxable income does not exceed Rs 50 lakh. The final amount of tax payable by an individual is Rs 2,62,080.

The 2020 budget introduced a new tax system, changing tax rates and offering preferential tax rates to taxpayers. However, those opting for the new tax regime will not be able to avail various exemptions and deductions like HRA, LTA, 80C, 80D and more. For this reason, the new tax regime did not find many takers. The government introduced five key changes to the 2023 budget, which will remain the same for the 2024-2025 financial year. They are:

Higher Tax Refund Limit: The government has introduced a full tax refund for income up to ₹ 7 lakhs. While under the old tax system this threshold is 5 lakhs. This means that taxpayers with income up to ₹ 7 lakhs will not have to pay any tax under the new tax regime! 

Streamlined Tax Rates: The government has increased the tax exemption limit to ₹3 lakhs and introduced new tax rates

Tax Slab for FY 2023-24	Tax Rate	Tax Slab for FY 2024-25	Tax Rate
Upto ₹ 3 lakh	Nil	Upto ₹ 3 lakh	Nil
₹ 3 lakh – ₹ 6 lakh	5%	₹ 3 lakh – ₹ 7 lakh	5%
₹ 6 lakh – ₹ 9 lakh	10%	₹ 7 lakh – ₹ 10 lakh	10%
₹ 9 lakh – ₹ 12 lakh	15%	₹ 10 lakh – ₹ 12 lakh	15%
₹ 12 lakh – ₹ 15 lakh	20%	₹ 12 lakh – ₹ 15 lakh	20%
More than 15 lakh	30%	More than 15 lakh	30%

• The following comparison shows the tax rates under both regimes:

	Old Tax Regime (FY 2022-23, FY 2023-24 and FY 2024-25)			New Tax Regime
Income Slabs	Age < 60 years & NRIs	Age of 60 Years to 80 years	Age above 80 Years	FY 2022-23	FY 2023-24	FY 2024-25
Up to ₹2,50,000	NIL	NIL	NIL	NIL	NIL	NIL
₹2,50,001 – ₹3,00,000	5%	NIL	NIL	5%	NIL	NIL
₹3,00,001 – ₹5,00,000	5%	5%	NIL	5%	5%	5%
₹5,00,001 – ₹6,00,000	20%	20%	20%	10%	5%	5%
₹6,00,001 – ₹7,00,000	20%	20%	20%	10%	10%	5%
₹7,00,001 – ₹7,50,000	20%	20%	20%	10%	10%	10%
₹7,50,001 – ₹9,00,000	20%	20%	20%	15%	10%	10%
₹9,00,001 – ₹10,00,000	20%	20%	20%	15%	15%	10%
₹10,00,001 – ₹12,00,000	30%	30%	30%	20%	15%	15%
₹12,00,001 – ₹12,50,000	30%	30%	30%	20%	20%	20%
₹12,50,001 – ₹15,00,000	30%	30%	30%	25%	20%	20%
₹15,00,000 and above	30%	30%	30%	30%	30%	30%

Salary Income: The government has extended the standard deduction of Rs 50,000, previously available only in the old system, to the new tax regime as well. The government has increased this amount to ₹75,000 for the new scheme, starting from the financial year 2024-25

Family Pension: Family pension beneficiaries can claim a deduction of ₹15,000 or 1/3 of the pension, whichever is less. This amount has been increased to ₹25,000 for the new scheme starting FY 2024-25.

Reduced surcharge for high net worth individuals: The surcharge rate for income above Rs 5 million has been reduced from 37% to 25%. This measure will reduce your effective tax rate from 42.74% to 39%. 

Higher exemption in holiday encashment: The exemption limit for non-government employees has been increased from ₹3 lakhs to ₹25 lakhs, an eight-fold increase.

Default regime: Starting from the 2023-24 financial year, the new income tax regime will be set as the default option. File the income tax return with Form 10-IEA before the due date. Switch between regimes annually to check tax advantages.

Features Of New Tax Regime

Following changes, the new tax regime for individual taxpayers includes several key characteristics

a) The new tax regime is the standard tax system. “Individuals can opt for the old tax regime annually, provided there is no business income.

b) Basic exemption limit of Rs 3 lakh for all individual taxpayers, irrespective of their age.

c)Section 87A offers a tax refund, eliminating tax on taxable income up to Rs 7 lakh

The highest surcharge rate for those earning more than Rs 2 million is 25%.

What Exemptions/Deductions Are Available Under the New Tax Regime in FY 24-25?

Under the 2024-25 tax schedules, taxpayers can claim some deductions and exemptions, but many have been eliminated.

This includes:

Employer contributions to NPS: An employer’s contributions to the National Pension System (NPS), up to 10% of the employee’s salary (and 14% for Central Government employees), are deductible under Section 80CCD(2) .

Flat-rate deduction on rental income: The government allows a flat-rate deduction of 30% of net rental income for rented properties, simplifying the calculation of taxable income from residential properties.

Interest on a mortgage loan: Deduct mortgage loan interest for rental property from rental income earned. However, you cannot offset a loss in home ownership for an owner-occupied or vacant property against other sources of income

Transportation Expense Allowance for Divyang Employees: Divyang employees (disabled employees) are entitled to transportation allowance to cover daily travel expenses between their workplace and home.

Transportation Compensation: Expenses incurred during transportation for official duties are allowed as transportation compensation.

Travel and Relocation Allowances: Allowances provided to employees for costs associated with tour or relocation travel are excluded.

What Exemptions/Deductions Are Not Available Under the New Tax scheme in FY 24-25?

The 2020 budget significantly revised the tax structure by eliminating around 70 of the 100 previously available exemptions. Choosing the new 2024-25 tax rates means forfeiting several key exemptions and deductions, including:

Holiday Travel Allowance (LTA): The government no longer allows the holiday travel expense deduction previously available under Section 10(5)

Housing Rental Allowance (HRA): This subsidy, reducing taxable income for rental payments, is no longer deductible under Section 10(13A)

Tax-free benefits: Benefits such as food stamps and other tax-free benefits that were previously exempt are now subject to tax.

Chapter VI-A Deductions: Important deductions like Section 80C (Investments), 80D (Health Insurance) and 80TTA (Savings Interest) are not available.

Deduction for interest on home loans: Deduction for interest paid on home loans for self-occupied properties under Section 24(b) and 80EEA is no longer available.

Specific subsidies: Subsidies such as transportation and early childhood education, which were previously exempt under Section 10(14), are not deductible.

Difference Between Old Vs New Tax Regime: Which is Better?

“Analyze both tax systems’ pros and cons before choosing one and inform your employer in April

Examine the tax exemptions and deductions available under the old tax system to decide between the two tax systems. Calculate the resulting tax liability after determining net taxable income, considering all allowable deductions and exemptions. You can use Tax2win’s calculator to compare old vs new tax systems and find the best fit for your tax liability. It is also important to know the book value of a company for choosing the best possible regime.