As interim Budget nears, check differences between old and new tax regime

Interim budget 2024: In a bid to improve the direct tax system, the finance ministry had introduced a simplified optional new income tax regime in 2020-2021

The Narendra Modi government may consider a large-scale jump in exemption rates under the old income tax regime in the upcoming interim Budget on February 1, according to sources. This may include extending income tax exemptions up to Rs 7 lakh and proposing measures for women farmers, a bid to bolster lower-income brackets.

The move follows ahead of the high-stake Lok Sabha election on cards as the Modi government eyes a third record win. The government feels the measures will not hurt the fiscal deficit numbers now.

In a bid to improve the direct tax system, the finance ministry introduced a simplified, optional new income tax regime in 2020-2021. Notably, in the last Budget, Finance Minister Nirmala Sitharaman incentivised the new scheme. This included offering a total tax rebate of up to Rs 7 lakh, which was Rs 5 lakh under the old system.

 

What is the difference between new and old tax regime

The new tax regime is a simplified version of the older system, offering a lower rate of tax while eliminating most exemptions from the older scheme. In the 2023-24 Union Budget, the government designated the new system as the default scheme for added appeal.


 

Five tax slabs in new tax regime

Salaried persons earning between Rs 3 lakh to Rs 6 lakh will attract a 5 per cent tax; those earning between Rs 6 lakh - Rs 9 lakh will attract a 10 per cent tax; further, the income bracket of Rs 9 lakh to Rs 12 lakh will attract a 15 per cent tax rate. The tax rate will be 20 per cent for income of Rs 12 lakh to 15 lakh, and a peak rate of 30 per cent will be levied on income above Rs 15 lakh.

The standard deduction of Rs 50,000, which was only available under the old regime, was extended to the new tax regime in 2023-24.

Tax rebate under new tax regime

In the old tax regime, a rebate of Rs 12,500 rupees was applicable for those salaried persons with up to an annual income of Rs lakh. Under the new regime, a rebate of Rs 25,000 is applicable up to an income of Rs 7 lakh.

Deductions under 80C not applicable to new regime

A prominent highlight of the old tax regime is deductions for contributions to provident funds, housing loan principal repayment, insurance premiums among other things. This provision has been eliminated from the new system. Tax exemptions on house rent allowance also cannot be claimed under the new regime.

Reduction in surcharge on the rich under new tax code

Under the new tax regime, the government reduced the surcharge added to the tax rate in the case of high-net-worth individuals. The new system levies a maximum of up to 25 per cent surcharge as compared to 37 per cent in the old system for individuals with income exceeding Rs 10 million.

(With agency inputs)