The government in Budget 2023 introduced some key changes, which remains the same even for FY 2024-2025 since no changes were made in the Interim Budget 2024, to encourage taxpayers to adopt the new regime.

They are:
a) Higher Tax Rebate Limit and Marginal Relief: Rebate u/s 87A  is available for Resident Individual having Total Income up to Rs.7, 00,000/-
1) 100% of tax payable, or
2) Rs. 25,000/-
Whichever is Lower
Marginal Relief:
If total income more than Rs. 7,00,000/- but does not exceed Rs. 7,27,770/-, tax on such income cannot exceed the amount by which the Total Income exceeds

c) Standard Deduction and Family Pension Deduction:
Salary income: The standard deduction of ₹50,000, which was only available under the old regime, has now been extended to the new tax regime as well. This, along with the rebate, makes ₹7.5 lakhs as your tax-free income under the new regime.

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

d) Reduced Surcharge for High Net worth Individuals: The surcharge rate on income over ₹5 crores has been reduced from 37% to 25%. This move will bring down their effective tax rate 42.74% to 39%.

e) Higher Leave Encashment Exemption: The exemption limit for non-government employees has been raised from ₹3 lakhs to ₹25 lakhs, an 8-fold increase.

f) Default Regime: 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 a form at the time of return filing. You will have the option to switch between the two regimes annually.

Old Tax Regime

The old regime is the tax system that prevailed before the introduction of the new regime. Under this regime, there are over 70 exemptions and deductions available, including HRA and LTA, that can reduce your taxable income and lower tax payments. The most popular and generous deduction is Section 80C, which allows for a reduction of taxable income up to Rs.1.5 lakh. The taxpayers are given a choice between the old and the new tax regime.

The decision to switch to the new or remain in the old tax regime or which regime is better for you shall be based on the tax savings deductions and exemptions you are eligible for in the old tax regime.

To make it easier, we have calculated a breakeven point for various income levels (refer to the table below) for a salaried individual below 60 years of age. This can be used to determine which regime to choose.

This Chart has been prepared by considering Salary/ Total income (excluding All Capital Gains and Special Income) which changes variably at various levels. Then what will be Tax and Deductions: