Old Vs New Tax Regime: Which is Better?

Old Tax Regime

The tax system that existed before the implementation of the new regime is the old tax regime. Approximately 70 exclusions and deductions are available under this system, including HRA and LTA, that can reduce your taxable income and minimise your tax payments.

Section 80C, the most prevalent and substantial deduction, allows for a reduction in the taxable income of up to Rs.1.5 lakh. Additionally, the taxpayers are offered the option of choosing between the existing and new tax regimes.

List of a Few Exemptions and Deductions in Old Tax Regime Slabs

Here’s the list (not exhaustive) of exemptions-

• Leave Travel Allowance 
• House rent allowance
• Deductions available under Section 80TTA/80TTB (on interest 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 Rs 15000 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. These popular tax-saving investment options include ELSS, NPS, PPF, and a tax break on insurance premiums. 

One can still claim a deduction under sub-section (2) of section 80CCD, basically an employer’s contribution towards an employee’s account in NPS and section 80JJAA ( for new employment).

Also note that if the employee’s contribution to EPF and NPS exceeds Rs 7.5 Lakh in the financial year in question, then the employee is liable to pay tax. 

List of Significant Exemptions Enclosed in 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.

Difference Between Old Vs New Tax Regime: Which should a person choose?

New tax regime vs old, which is better, is a tough question to answer since there's no one correct answer.

The choice of switching to the new tax regime or staying in the old tax regime, or whether the regime is best for you, must be based on the tax savings deductions and exemptions available in the previous tax system.

Old Vs New Regime Example

Suppose an individual has an income of Rs. 7,75,000. The following table shows the tax calculation under the new and old regimes:

Some Estimates: Old Regime vs New Regime

Here are some estimates to help you decide between the existing and new tax regimes:

• The new regime will be advantageous when total deductions are less than 1.5 lakhs.
• When total deductions exceed 3.75 lakhs, the old regime will be beneficial.
• When total deductions range from 1.5 lakhs to 3.75 lakhs: this is determined by your income level.

Summing Up Old Tax Regime Vs New Tax Regime

People often wonder about the difference between old and new tax regime. The new income tax regime would cater to people who do not want excessive deductions or do not wish to avoid tax preparation burdens. This may include non­salaried taxpayers (including consultants) who are ineligible for Section VIA exemptions and deductions. 

Both old vs new tax regime have benefits as well as drawbacks. Before deciding, understand the differences between the old and new tax regimes. The previous tax structure instils in a taxpayer the habit of saving. The new tax structure benefits employees who earn less and invest less, resulting in fewer deductions and exemptions. 

The new tax system is safer and more straightforward, with fewer records and less potential for tax evasion fraud. However, because everyone has their unique set of deductions and exemptions, the two regimes must be compared to find the best for everyone.