New Tax Regime vs Old Tax Regime: Which is Better for Employees

Last Updated: May 17, 2024

Summary: The new tax regime is simple to use and offers lower tax rates but a few deductions. Whereas the old tax regime provides multiple tax breaks but is quite difficult to understand. Look at the new tax regime vs old one to learn more about them in detail below.

The Indian income tax system levies a tax on the taxpayers depending on their income levels. However, after 2020-21, the method of levying taxes has changed.

The new tax regime was announced where tax rates were reduced but with a reduction in tax-saving opportunities. Additionally, the government also added many incentives and bonuses in the 2023 budget to easily implement this new regime.

If you are also a taxpayer and wondering about the new regime vs old tax regime and confused about which one to choose, then this article will help you out. Below we will discuss the key differences between these two regimes and their available deductions and exemptions to help you choose the right one.

What is a Tax Slab?

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Tax slabs are tiers of the taxable income. Each slab represents a range of income earned by individuals and each slab has a different tax rate. The lower your income is, the less tax you will pay in terms of percentage. Tax slabs ensure that each taxpayer pays fairly as per their salary or income.

What is the New Tax Regime?

The new tax regime came into place in Budget 2020 where the tax slabs were changed, and taxpayers were provided concessional tax rates. But those taxpayers cannot claim various exceptions and deductions like HRA, LTA, 80C, 80D, etc. Due to this reason, many taxpayers do not opt for this regime.

Exemptions Under the New Tax Regime
Income from Life Insurance
Agricultural Income
Standard reduction on rent
Retrenchment compensation
Leave encashment on retirement
VRS proceeds up to INR 5 lakhs
Death cum retirement benefit

In the Budget 2023, the government introduced five changes that remain the same for FY 2024-2025 because no changes were made within the Interim Budget 2024. These changes are:

Higher Tax Rebate Limit: A full tax rebate on the income up to INR 7 lakhs is introduced. But under the old tax regime, this threshold is INR 5 lakhs. It implies that the taxpayers with maximum of INR 7 lakhs income do not need to pay any tax under the new tax regime.
Streamlined Tax Slabs: Under the new tax regime, the tax exemption limit is increased to INR 3 lakhs and the new tax slabs are as follows:

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%

Tax rates under old and new tax regimes are compared below:

Income Slab	Old Tax Regime	New tax Regime (until 31 March’23)	New Tax Regime (From 1 April’23)
₹0 – ₹2,50,000	–	–	–
₹2,50,000 – ₹3,00,000	5%	5%	–
₹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%

Standard Deduction and Family Pension Deduction

Salary Income: The standard ₹50,000 deduction which was only available within the old regime has also been added in the new tax regime. This, along with the rebate, makes INR 7.5 lakhs tax-free within the new tax regime.
Family Pension: Those who receive a family pension can also claim the deduction of INR 15,000 or one-third of the pension, whichever amount is less.
Reduced Surcharge for High-Net-Worth Individuals: The surcharge rate on the income over INR 5 crore is reduced from 37% to 25%. This will help bring down the effective tax from 42.74% to 39%.
High Leave Encashment Exemption: This exception limit for non-government employees is raised from INR 3 lakhs to 25 lakhs, which is an eight-fold increase.
Default Regime: From FY 2023-24, the new income tax regime has been set as the default option. However, if you wish to continue using the old regime, you must submit the income tax return with Form 10IEA before the due date.

Section 80C deduction is not available under the new regime

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What is Old Tax Regime?

The old tax regime was used before the new tax regime came. Within this regime, there were over 70 exemptions and deductions available like HRA and LTA which can decrease taxable income and tax payments.

One of the most popular deductions is Section 80C, that helps taxpayers to reduce taxable income up to INR 1.5 lakh. The taxpayers are provided with an option to choose between the old and new tax regime.

List of Exemptions and Deductions in Old Tax Regime Slabs

Leave travel allowance
House rent allowance
A standard deduction of Rs 50,000 was available for salaried individuals.
Deductions available under Section 80TTA/80TTB (on interests from savings account deposits)
Entertainment allowance deduction and professional tax (For government employees)
Tax relief on interest paid on home loan for self-occupied or vacant property u/s 24
Deduction of INR 15,000 permitted from family pension under clause (ii a) (Section 57)
Tax-saving investment deductions 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) – employers’ contribution to NPS, and Section 80JJA) and so on.
The popular tax-saving investment options include ELSS, NPS, PPF, and a tax break on insurance premiums.

However, one can still claim a deduction within sub-section (2) of section 80CCD. It is an employer’s contribution towards an employee’s account in NPS and section 80JJAA (for new employment).

It is also important to note that, if the employee’s contribution to EPF and NPS is above INR 7.5 lakh in a given financial year, then an employee needs to pay tax.

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

The decision to stay in old regime or choose the new tax regime depends on your tax savings deductions and exemptions you are eligible for the old tax regime.

To make things easier for you, we have computed a breakeven point for different income levels of salaried individuals who are below 60 years of age.

In the next section, you can see the breakdown of old tax regime vs new tax regime and choose the right tax regime for yourself.

Breakdown of Old Tax Regime vs New Tax Regime

If the eligible deductions and exemptions under the old tax regime are higher than the breakeven threshold for the income level, then it is better you stay in the old regime. However, if the breakeven threshold for your income level is higher, then upgrading to the new tax regime is better.

The breakeven threshold point is the tax amount wherein there is no difference in tax liability for both the old and the new tax regimes.

1. If You Have Salary Income:

Income Level	Less: Standard Deduction	Net Income	Tax Under Both Regimes	Additional Deductions (over & above standard deduction) required in Old Regime to Break Even	Which Regime to Choose?
₹7,00,000	₹50,000	₹6,50,000	₹0	₹1,50,000	You will benefit only from the new regime.
₹8,00,000	₹50,000	₹7,50,000	₹36,400	₹1,38,500	Old regime: If deductions > INR 1,38,500 New regime: If deductions < INR 1,38,500
₹9,00,000	₹50,000	₹8,50,000	₹41,600	₹2,12,500	Old regime: If deductions > INR 2,12,500 New regime: If deductions < INR 2,12,500
₹10,00,000	₹50,000	₹9,50,000	₹54,600	₹2,50,000	Old regime: If deductions > INR 2,50,000 New regime: If deductions < INR 2,50,000
₹12,50,000	₹50,000	₹12,00,000	₹93,600	₹3,12,500	Old regime: If deductions > Rs. 3,12,500 New regime: If deductions < INR 3,12,500
₹15,00,000	₹50,000	₹14,50,000	₹1,45,600	₹3,58,000	Old regime: If deductions > Rs. 3,58,000 New regime: If deductions < INR 3,58,000
₹15,50,000	₹50,000	₹15,00,000	₹1,56,000	₹3,75,000	Old regime: If deductions > INR 3,75,000 New regime: If deductions < INR 3,75,000
₹16,00,000	₹50,000	₹15,50,000	₹1,71,600	₹3,75,000	Old regime: if deductions > INR 3,75,000 New regime: If deductions < INR 3,75,000

2. If You have Income Other than Salary

Tax Under Old vs New Regime

Here are some of the calculations that can help you choose between old and new tax regime:

When the total deductions are INR 1.5 lakhs or less, then the new regime will be beneficial

If the total deductions are more than ₹3.75 lakhs, then the old regime would be beneficial

When the total deductions are between ₹1.5 lakhs and ₹3.75 lakhs, it will depend on your income level

Published On: April 17, 2024

Varsha

Varsha is an experienced content writer at Techjockey. She has been writing since 2021 and has covered several industries in her writing like fashion, technology, automobile, interior design, etc. Over the span of 1 year, she has written 100+ blogs focusing on security, finance, accounts, inventory, human resources, etc. Her expertise is centered around writing articles on cloud computing, cloud migration, and data security. Being a keen learner, she is constantly improving herself in the field of software and technology.