Finance
Income Tax Slabs 2024: Old vs. New Tax Regime – Which Will Help You Save More?
As the financial year 2024-25 approaches, understanding the latest income tax slabs is crucial for effective financial planning. The Indian government offers two distinct tax regimes: the old tax regime and the new tax regime. The old regime includes various deductions and exemptions, while the new regime provides lower tax rates with minimal deductions. Choosing between these options can significantly impact your tax liability and overall savings. This article explores the income tax slabs for FY 2024-25, compares the two regimes, and helps you decide which one might offer the most savings.
Income Tax Slab for FY 2024-25
Both the old and new tax regimes cater to different income brackets. Here is a breakdown of the tax slabs:
Old Tax Regime (with deductions and exemptions):
| Income Bracket (Rs.) | Tax Rate |
| Up to 2.5 lakh | No tax |
| 2.5 lakh – 5 lakh | 5% |
| 5 lakh – 10 lakh | 20% |
| Above 10 lakh | 30% |
New Tax Regime (lower rates, no exemptions):
| Income Bracket (Rs.) | Tax Rate |
| Up to 3 lakh | No tax |
| 3 lakh – 6 lakh | 5% |
| 6 lakh – 9 lakh | 10% |
| 9 lakh – 12 lakh | 15% |
| 12 lakh – 15 lakh | 20% |
| Above 15 lakh | 30% |
Key differences between old and new tax regimes
The old tax regime allows taxpayers to claim various deductions and exemptions, such as investments under Section 80C (e.g., ELSS funds, life insurance premiums), 80D for medical insurance, and others. These deductions can significantly reduce the taxable income and thus, the tax liability.
The new income tax slabs for FY 2024-25, on the other hand, offers simplified tax rates without exemptions and deductions. This regime is ideal for individuals who do not have significant tax-saving investments or those who prefer a straightforward tax filing process.
Comparison of Old and New Tax Regimes
| Aspect | Old Tax Regime | New Tax Regime |
| Deductions and Exemptions | Available (e.g., 80C, 80D) | Not available |
| Tax Rates | Higher | Lower |
| Ideal for | Taxpayers with investments and deductions | Taxpayers with minimal deductions |
Which Tax Regime Saves More?
Determining which tax regime is more beneficial depends on your income structure and the amount of deductions you can claim. For individuals who can maximise deductions, the old tax regime can result in lower tax liability. For instance, investments in ELSS funds under Section 80C can reduce taxable income by up to Rs. 1.5 lakh, making the old tax regime a better choice for those who actively invest in tax-saving instruments.
The new tax regime, however, may be more suitable for individuals who do not have many deductions to claim. The lower tax rates make it a straightforward choice for those who do not want to invest in specific instruments just for tax benefits.
Consider an individual with a gross income of Rs. 12 lakh per annum:
Old Tax Regime:
- Deductions claimed: Rs. 1.5 lakh (Section 80C), Rs. 25,000 (Section 80D)
- Taxable income: Rs. 10.25 lakh
- Tax liability: 5% on Rs. 2.5 lakh + 20% on Rs. 5 lakh + 30% on Rs. 2.75 lakh = approximately Rs. 1.42 lakh
New Tax Regime:
- No deductions claimed
- Taxable income: Rs. 12 lakh
- Tax liability: 5% on Rs. 3 lakh + 10% on Rs. 3 lakh + 15% on Rs. 3 lakh + 20% on Rs. 3 lakh = approximately Rs. 1.2 lakh
In this scenario, the income tax slabs for FY 2024-25 results in a lower tax payment. However, if the individual can claim more deductions under the old regime, the tax liability might be lower than in the new regime.
Who should choose the old tax regime?
The old tax regime is best suited for individuals who have significant deductions and exemptions to claim. These include:
- Investors in ELSS funds: Under Section 80C, up to Rs. 1.5 lakh can be deducted from the taxable income.
- Home loan borrowers: Deductions on principal repayment (Section 80C) and interest (Section 24) can substantially reduce taxable income.
- Policyholders: Premiums paid for life and medical insurance qualify for deductions under Sections 80C and 80D.
- Individuals with children: Tuition fees for up to two children are deductible under Section 80C.
Choosing the old regime is beneficial for those who can maximise their tax-saving investments and deductions.
Who should choose the new tax regime?
The new tax regime is ideal for individuals who do not have significant deductions or prefer a simpler, no-hassle approach to tax filing. This includes:
- Young professionals: Individuals just starting their careers who may not have large investments or significant expenses.
- High-income earners: Those who prefer lower tax rates and do not want to lock in their money in tax-saving investments.
- Self-employed individuals: Taxpayers who have fluctuating incomes and do not claim regular deductions.
The simplicity of the new tax regime makes it attractive for taxpayers looking for convenience and immediate savings.
Tax planning tips for 2024-25
- Carefully calculate your total income and potential deductions to see which regime is more beneficial.
- Online tax calculators can help you compare the tax liabilities under both regimes.
- If choosing the old tax regime, consider investing in tax-saving instruments like ELSS funds, which offer both high returns and tax benefits.
- Keep an eye on changes to the tax laws and any budget announcements that may affect the tax regimes.
Conclusion
Choosing between the old and income tax slabs for FY 2024-25 depends on individual financial circumstances. The old tax regime is suitable for those who can take advantage of deductions and tax-saving investments, such as ELSS funds. The new tax regime offers simplicity with lower tax rates but no deductions. To decide which regime suits you best, compare your tax liability under both options and consider your long-term financial goals. Making an informed choice can lead to significant tax savings and better financial planning.
