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With revised tax slabs and an increased standard deduction, taxpayers must be keen to understand the impact of these changes and determine which regime suits them best.
Revised tax slabs under the new regime
The new tax regime now offers increased flexibility with a higher exemption threshold and lower tax rates across various income brackets.
The lowest tax slab in the new regime has been raised to ₹3 lakh from the previous ₹2.5 lakh.
Individuals earning up to ₹3 lakh annually will not have to pay any income tax.
Revised tax slabs:
₹3 lakh to ₹7 lakh: 5% tax
₹7 lakh to ₹10 lakh: 10% tax
₹10 lakh to ₹12 lakh: 15% tax
₹12 lakh to ₹15 lakh: 20% tax
Above ₹15 lakh: 30% tax
The standard deduction has been increased to ₹75,000 from ₹50,000.
Additionally, taxpayers with taxable income of ₹7 lakh can claim a rebate under Section 87A up to an amount of ₹25,000.
Old regime remains unchanged
The old tax regime remains intact, with its existing tax slabs and deduction options:
Rebate for lower incomes: Individuals earning up to ₹5 lakh can claim a rebate of ₹12,500 under Section 87A of the Income Tax Act.
Which income tax regime is better?
The decision to choose between the new and old tax regimes depends on individual circumstances, particularly the availability and extent of deductions.
According to Adhil Shetty, CEO of BankBazaar, “The revised new regime proves to be a bigger deterrent to staying on in the old regime. While the old regime has more deductions that encourage investing and insuring, the tax brackets are also much higher. To keep your taxes as low as the new regime, you need to have significant deductions.”
For individuals with an income of ₹15.6 lakh or more, deductions of ₹4.84 lakh are necessary to have a tax liability equal to or lower than the revised new regime.
“At lower income ranges, the new regime is more beneficial due to the higher rebate, which exempts taxpayers with a taxable income of up to ₹7.5 lakh, compared to only ₹5 lakh under the old regime,” Shetty said.
Deductions required for equal taxation
To achieve parity between the two regimes at various income levels, the following deductions are needed:
| Income | Deduction (Before SD) | Deduction Rate (Before SD) | Old regime tax | New regime tax (FY24-25) |
| 8,00,000 | 2,00,000 | 25.00% | 23,400 | 23,400 |
| 10,00,000 | 3,00,000 | 30.00% | 44,200 | 44,200 |
| 15,00,000 | 4,08,333 | 27.22% | 1,30,000 | 1,30,000 |
| 20,00,000 | 4,33,333 | 24.17% | 2,96,400 | 2,96,400 |
| 30,00,000 | 4,33,333 | 14.44% | 5,90,200 | 5,90,200 |
| 50,00,000 | 4,33,333 | 8.67% | 12,14,400 | 12,14,400 |
(Source: Bankbazaar; Note: The standard deduction of ₹50,000 is not included in the above deduction.)
Conclusion
The choice between the old and new tax regimes hinges on individual financial goals and the availability of deductions.
The new regime, with its simplified structure and increased standard deduction, offers a compelling option for many taxpayers, particularly those with fewer deductions.
As taxpayers assess their financial situations, they must weigh the benefits of each regime to make an informed decision that aligns with their tax planning strategies.
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