Budget 2024: Old tax regime may still help you save more, here's the math

Choosing between the old and new income tax regimes to minimise your tax outgo can be challenging for many taxpayers. Here's the math to make you understand

Income Tax slab 2024: In the Budget 2024, Finance Minister Nirmala Sitharaman announced changes to the income tax slabs effective from FY 2024-25 under the new income tax regime.

"An individual will have to choose between the old and new regime depending upon the quantum of deduction / exemption available to him under the old regime as compared to new regime," says Mitesh Jain, Partner, Economic Laws Practice.

The standard deduction has also been increased from Rs 50,000 to Rs 75,000.

Here's a breakdown of the new slabs:

Up to Rs 3 lakh: Nil

Rs 3 lakh to Rs 7 lakh: 5%

 

Rs 7 lakh to Rs 10 lakh: 10%

Rs 10 lakh to Rs 12 lakh: 15%

Rs 12 lakh to Rs 15 lakh: 20%

Above Rs 15 lakh: 30%

How does the standard deduction change?

The standard deduction has been increased from Rs 50,000 to Rs 75,000. Additionally, the deduction on family pension for pensioners has increased from Rs 15,000 to Rs 25,000.

What about the old tax regime?

The old income tax regime remains unchanged. But do note that it already offers various deductions like loan payments, insurance premiums, tax-saving investments, tuition fees, and medical expenses. Here are the slabs for the old regime:

Up to Rs 2.5 lakh: Nil

Rs 2,50,001 to Rs 5 lakh: 5%

Rs 5,00,001 to Rs 10 lakh: 20%

Above Rs 10 lakh: 30%

How do these changes impact you?

Let's consider an example to understand the impact. Mr Pandey, 45 years old, earns Rs 15 lakh annually and resides in Gurgaon. He pays Rs 8,000 monthly rent and a Rs 20,000 EMI for his flat in Noida.

Under the New Tax Regime (Post Budget 2024)

Total income: Rs 15,00,000

Standard deduction: Rs 75,000

Taxable income: Rs 14,25,000

Tax calculation:

Up to Rs 3 lakh: Nil

Rs 3 lakh to Rs 7 lakh: Rs 20,000 (5% of Rs 4 lakh)

Rs 7 lakh to Rs 10 lakh: Rs 30,000 (10% of Rs 3 lakh)

Rs 10 lakh to Rs 12 lakh: Rs 30,000 (15% of Rs 2 lakh)

Rs 12 lakh to Rs 15 lakh: Rs 45,000 (20% of Rs 2.25 lakh)

Total tax: Rs 1,25,000  

Health and education cess (4%): Rs 5,000  

Net tax payable: Rs 1,30,000

Under the new tax regime (before Budget 2024)

Total income: Rs 15,00,000

Standard deduction: Rs 50,000

Taxable income: Rs 14,50,000

Tax calculation:

Up to Rs 3 lakh: Nil

Rs 3 lakh to Rs 6 lakh: Rs 15,000 (5% of Rs 3 lakh)

Rs 6 lakh to Rs 9 lakh: Rs 30,000 (10% of Rs 3 lakh)

Rs 9 lakh to Rs 12 lakh: Rs 45,000 (15% of Rs 3 lakh)

Rs 12 lakh to Rs 15 lakh: Rs 50,000 (20% of Rs 2.5 lakh)

Total tax: Rs 1,40,000  

Health and education cess (4%): Rs 5,600  

Net tax payable: Rs 1,45,600

Under the Old Tax Regime

Total income: Rs 15,00,000

HRA exemption: Rs 1,20,000

Standard deduction: Rs 50,000

Interest on home loan: Rs 1,44,000

Deductions (Section 80C): Rs 1,44,000

Taxable income: Rs 10,42,000

Tax calculation:

Up to Rs 2.5 lakh: Nil

Rs 2.5 lakh to Rs 5 lakh: Rs 12,500 (5% of Rs 2.5 lakh)

Rs 5 lakh to Rs 10 lakh: Rs 1,00,000 (20% of Rs 5 lakh)

Rs 10 lakh to Rs 10.42 lakh: Rs 8,400 (20% of Rs 42,000)

Total tax: Rs 1,20,900  

Health and education cess (4%): Rs 4,836  

Net tax payable: Rs 1,25,736

What does this mean for Mr Pandey?

New Tax Regime (Post Budget 2024): Rs 1,30,000

New Tax Regime (Before Budget 2024): Rs 1,45,600

Old Tax Regime: Rs 1,25,736

With the latest changes in the new tax regime, Mr Pandey benefits by Rs 15,600 compared to the previous new tax regime. However, he saves Rs 4,265 if he opts for the old tax regime instead of the updated new tax regime.

How to choose between the Old and New Income Tax regimes?

Choosing between the old and new income tax regimes to minimise your tax outgo can be challenging for many taxpayers. "It really depends on the amount of deductions from gross total income that you can claim to reduce your taxable income. If you know your gross total income and the minimum amount of deductions at which you would pay the same tax under both regimes, then you would be able to choose easily," says Akshat Rastogi, a chartered accountant.

This is because if you can claim more than this deduction amount, then the old tax regime would be beneficial. Conversely, if the amount of deductions you can claim is less than this minimum level, then the new tax regime would save you more tax.

"As in the case of Mr Pandey, a deduction of up to Rs 2 lakh can be claimed for interest paid on a home loan during the financial year in the old tax regime. Interest paid on an education loan is eligible for deduction under Section 80E without any monetary limit, and there are many more such deductions available," he explains.