Income Tax Budget 2024: New vs old— which tax regime is better for you post revision? Here is a comparison across slabs

In the Union Budget 2024 presented by Finance Minister Nirmala Sitharaman on Tuesday, lower tax rates have been introduced under the new tax regime (NTR), indicating that the old tax regime will be eased out gradually.

With the latest changes, the salaried taxpayers stand to save a maximum of ₹17,500. The new tax regime, anyway, levies lower tax rates on the same gross income compared to tax liability calculated under the old tax regime.

Sridharan Sundaram, a Sebi-registered investment advisor and founder of Wealth Ladder Direct, says, “Slowly and steadily, the finance ministry wants to focus on the new tax regime. The government’s immediate focus is clear. They want to make the new regime more beneficial even after factoring in ₹2 lakh deductions.”

Let us understand this in detail here:

Let us look at the tax burden in different income scenarios, when a taxpayer earns ₹5 lakh, ₹10 lakh, and ₹15 lakh per annum. We calculate the taxpayer’s tax outgo under both tax regimes. The standard deduction, surcharge, and cess have been overlooked for ease of calculation.

Different income scenarios:

I. Taxpayer earns ₹5 lakh: Under the old tax regime, the tax liability is ₹12,500. However, since taxpayers are entitled to a tax rebate under 87A of ₹12,500, the tax liability is zero.

Under the new Tax regime, the tax liability is ₹10,000. However, since the taxpayers are entitled to claim a rebate under section 87A, the tax liability becomes zero.

So, in both scenarios, the tax liability is ‘zero’.

II. Taxpayer earns ₹10 lakh: Under the old tax regime, the tax liability is ₹1,12,500. After deducting 87A rebate, it is 1,00,000.

Under the new tax regime, the tax liability is ₹50,000 (5 per cent of 4,00,000 + 10 per cent of 3,00,000). After reducing 87A rebate of ₹25,000, the tax liability is ₹25,000.

So, difference between the two tax regimes is ₹75,000.

III. Taxpayer earns ₹15 lakh: Under the old tax regime, the tax liability is ₹1,12,500 plus ₹1,50,000 = ₹2,62,500. After 87A rebate, the tax liability is ₹2,50,000.

Whereas in the new tax regime, the tax liability is ₹50,000 + ₹90,000 (15 per cent of 2 lakh + 20 per cent of 3 lakh) = ₹1,40,000. After 87A rebate, it is ₹1,15,000.

This means the tax liability in the old tax regime is higher by ₹1,35,000.

Tax deduction

However, it is imperative to realise that the old tax regime enables taxpayers to claim tax deductions that are not available in the new tax regime.

When taxpayers invest ₹1.5 lakh in tax-saving instruments allowed under section 80C, they are eligible to claim exemption against this investment, which reduces their tax outgo in proportion to the investment made.

“The new tax regime is being pushed by the government. Gradually, it will be the only regime that will stay relevant,” says Preeti Zende, a Sebi-registered investment advisor and founder of Apna Dhan Financial Services.