Tax-free income to revised surcharge rate: Top things to know about current new income tax vs old income tax slabs

New income tax vs old income tax slabs: With the Central Board of Direct Taxes (CBDT) notifying Income Tax (I-T) Return forms 1 and 4 for FY 2023-24 (AY 2024-25), the time has come to analyse which tax regimes -- new tax regime and old tax regime -- suits you better. The Government of India introduced the new tax rate regime from April 1, 2020 (FY 2020-21), for individuals and the Hindu undivided family (HUF). The old tax regime has been in place before the new tax regime was brought in.

Earlier this year, in her Union Budget speech for 2023-24, Union Finance Minister Nirmala Sitharaman declared that the Centre is making the new income tax regime as the default tax regime. However, she said citizens will continue to have the option to avail the benefit of the old tax regime.

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New income tax regime

The new tax regime was introduced in Budget 2020 wherein the tax slabs were altered. Taxpayers got concessional tax rates. However, the new tax system omitted several exemptions and deductions, such as HRA, LTA, 80C, 80D and more.

A few deductions offered 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 Rs 5 lakhs, Death cum retirement benefit, money obtained as a scholarship for education, etc.

Here are the top 6 points to note:

> The new tax regime was widened with six tax slab rates ranging from 0% to 30%. With the lowest starting with Rs 3 lakh and the highest being Rs 15 lakh.

> Under this regime, a full tax rebate on an income up to Rs 7 lakh was introduced under Section 87A. Whereas, this threshold is Rs 5 lakh under the old tax regime.

> In the new tax regime, the standard deduction for salaried employees of Rs 50,000 remains applicable.

> This, along with the rebate, makes Rs 7.5 lakhs as your tax-free income under the new regime.

>  The surcharge rate on income over Rs 5 crore was slashed to 25% from 37%. This move brought down the effective tax rate from 42.74% to 39%.

> In terms of leave encashment, the exemption limit for non-government employees was raised from Rs 3 lakh to Rs 25 lakh.

Old income tax regime

Under the old tax regime, individuals have the option to claim various tax deductions and exemptions to reduce their taxable income. The Old Tax Regime offers more than 70 deductions and exemptions to claim, such as Section 80C, HRA, LTA, and more.

> The most popular deduction is under Section 80C that allows for a reduction of taxable income up to Rs 1.5 lakh.

> The old tax regime offers tax-saving investment deductions under Chapter VI-A (80D, 80E, 80DD, 80DDB,, 80EE, 80EEA, 80EEB, 80G, 80GG, 80GGA, 80GGC, 80IA, 80-IAB, 80-IAC, 80-IB, 80-IBA, etc).

> Besides, it also offers Leave Travel Allowance and House rent allowance deductions.

> Deductions are also available under Section 80TTA/80TTB (on interest from savings account deposits).

> Tax relief on interest paid on home loan for self-occupied or vacant property u/s 24

> Besides, the regime offers deductions on popular tax-saving investment options include ELSS, NPS, PPF, and a tax break on insurance premiums.

Income Tax Slab	Old Tax Regime	New Tax Regime
NIL (No tax)	Rs 0 to Rs 2.5 lakh	Rs 0 to Rs 3 lakh
5%	Rs 2.5 lakh to Rs 5 lakh	Rs 3 lakh to Rs 6 lakh
10%	Rs 5 lakh to Rs 7.5 lakh	Rs 6 lakh to Rs 9 lakh
15%	Rs 7.5 lakh to Rs 10 lakh	Rs 9 lakh to Rs 12 lakh
20%	Rs 10 lakh to Rs 12.5 lakh	Rs 12 lakh to Rs 15 lakh
25%	Rs 12.5 lakh to Rs 15 lakh	--
30%	Above Rs 15 lakhs	Above Rs 15 lakh

Old tax regime or new tax regime?

That question remains subjective and will depend on individual taxpayers. The biggest difference between the old vs new tax regimes is that the old tax regime has higher rates but offers options to reduce taxes. The new regime has marginally lower taxation but offers no ways to reduce taxes.