STARTUP STATION

• No changes were made in direct taxes in the Interim Budget 2024-2025.
• Let’s explore both regimes and determine the preferable option for 2024.

Introduced in the Budget of 2020, the new tax regime adjusted tax slabs and offered concessional rates. However, opting for this regime meant foregoing several exemptions and deductions like HRA, LTA, 80C, and 80D, making it less appealing. In the Budget of 2023, the government introduced five key changes to encourage adoption, which remain unchanged for FY 2024-2025:

The new regime now offers a full tax rebate on incomes up to ₹7 lakhs, compared to ₹5 lakhs under the old regime.

The tax exemption limit has been raised to ₹3 lakhs, with the following tax slabs:

Total Income	Rate of Tax
up to ₹3,00,000	Nil
₹3,00,001- ₹6,00,000	5%
₹6,00,001- ₹9,00,000	10%
₹9,00,001- ₹12,00,000	15%
₹12,00,001- ₹15,00,000	20%
₹15,00,001 and above	30%

Income Slab	Old Tax Regime	New Tax Regime (until 31st March 2023)	New Tax Regime (From 1st April 2023)
₹0 - ₹2,50,000	Nil	Nil	Nil
₹2,50,000 - ₹3,00,000	5%	5%	Nil
₹3,00,000 - ₹5,00,000	5%	5%	5%
₹5,00,000 - ₹6,00,000	20%	10%	5%
₹6,00,000 - ₹7,50,000	20%	10%	10%
₹7,50,000 - ₹9,00,000	20%	15%	10%
₹9,00,000 - ₹10,00,000	20%	15%	15%
₹10,00,000 - ₹12,00,000	30%	20%	15%
₹12,00,000 - ₹12,50,000	30%	20%	20%
₹12,50,000 - ₹15,00,000	30%	25%	20%
>₹15,00,000	30%	30%	30%

The standard deduction of ₹50,000, previously available only under the old regime, is now extended to the new tax regime.

Individuals receiving family pension can claim a deduction of ₹15,000 or 1/3rd of the pension, whichever is lower.

The surcharge rate on income over ₹5 crores has been reduced from 37% to 25%.

The exemption limit for non-government employees has been raised from ₹3 lakhs to ₹25 lakhs.

Starting from FY 2023-24, the new income tax regime will be set as the default option. If you want to continue using the old regime, you must submit the income tax return along with Form 10IEA before the due date. You will have the option to switch between the two regimes annually to check the tax benefits.

The old regime, prevailing before the new regime's introduction, offers over 70 exemptions and deductions, including HRA and LTA, which can reduce taxable income and lower tax payments. Notably, Section 80C allows for a reduction of taxable income up to Rs.1.5 lakh. Taxpayers have the choice between the old and new tax regimes.

The decision to switch to the new or remain in the old tax regime depends on the tax savings, deductions, and exemptions you are eligible for in the old regime. To simplify, we've calculated a breakeven point for various income levels for salaried individuals below 60 years of age. This can help determine the preferable regime.

The breakeven point is the amount where there's no difference in tax liability between the two regimes. If your total eligible deductions and exemptions in the old tax regime exceed the breakeven threshold for your income level, it's advisable to stay in the old regime. Conversely, if the breakeven threshold is higher, moving to the new tax regime is more beneficial.

Flexibility in Investment Choices: The old tax regime allows for various investment options under Section 80C, such as EPF, PPF, ELSS, NSC, etc., which can help individuals tailor their investment portfolio according to their financial goals and risk appetite. In contrast, the new tax regime restricts deductions and exemptions, limiting the scope for tax-saving investments.

Individuals with long-term financial goals, such as retirement planning or saving for children's education, may find the old tax regime more beneficial due to the availability of tax-saving investment avenues and deductions. These deductions not only reduce current tax liability but also contribute to building wealth over time.

Home loan borrowers may prefer the old tax regime as it allows deductions on both principal repayment (under Section 80C) and interest payment (under Section 24) of the home loan. These deductions can significantly reduce the tax burden for individuals servicing a home loan. However, under the new regime, these deductions are not available, making the old regime more attractive for home loan borrowers.

Employees receiving various perks from their employers, such as medical insurance, transportation allowance, or housing accommodation, may find the old tax regime advantageous. These benefits are often exempt from tax or eligible for deductions under the old regime, whereas they may not be available or fully taxable under the new regime.

: Business owners or self-employed individuals may find the old tax regime more suitable for their tax planning strategies. The availability of deductions for business expenses, depreciation, and other business-related expenditures can significantly reduce their taxable income and overall tax liability, which may not be possible under the new tax regime.

Individuals approaching the upper end of a tax bracket may find the old tax regime more favorable due to the availability of deductions that can help them stay within a lower tax bracket. In contrast, the new tax regime offers fewer opportunities for tax-saving deductions, potentially resulting in higher tax outflows for individuals with higher incomes.

Taxpayers should also consider their specific life situations, such as family size, dependents, health conditions, and future financial goals, before choosing between the old and new tax regimes. Certain life events or circumstances may make one regime more advantageous over the other.

The new tax regime aims to simplify tax compliance by eliminating the need to track and claim various deductions and exemptions. Individuals who prefer a hassle-free tax filing process may find the new regime more appealing, despite potentially lower tax-saving opportunities.