New Regime vs Old Regime – which is better?

In a nutshell and quite obvious, one should opt for the regime where the tax liability is lower.

Determination of tax liability

Following factors are involved to determine the tax liability:

• • Total Income
  • Eligible Exemptions & Deductions
  • Tax calculation slabs
  • Rebate in tax amount, if any

Difference in the regimes to arrive at the tax liability pertaining to FY: 2024-25

For ‘Total Income’ upto Rs. 7.00 lakhs, there is NIL tax in the ‘New Regime’ and as such the ‘Old Regime’ should not be considered.

In the ‘Old Regime’ there is a substantially higher provision for Exemptions & Deductions on the Total Income.

In the ‘New Regime’ the Tax Calculation Slabs is substantially more attractive. It implies that for the same income level where there is zero reduction owing to exemptions, the ‘New Regime’ is always much more attractive.

Rebate is usually given on the tax amount. This relief is higher in the ‘New Regime’.

Why will you opt for the ‘Old Regime’?

Tax is calculated as per the income slabs on the ‘Taxable Income’ which is determined after considering the total income and all eligible exemptions / deductions.

In the ‘Old Regime’ there is wide scope for claiming the exemptions / deductions compared to the ‘New Regime’ which may substantially reduce the ‘Taxable Income’. One needs to calculate the tax based on the different ‘Taxable Income’ under the two regimes and opt for one with a lower tax value.

In simple words, as long as the ‘Exemptions / Deductions’ in keeping the tax liability lower, one should opt for the ‘Old Regime’. The illustrative table to follow will provide some insights. It has been assumed that ‘Salary’ is part of the Total Income.

Note: Please check for the eligible exemptions / deductions in the ‘Old Regime’