the government has union budget 2024 Many initiatives were taken towards making the new income tax regime more attractive. Its purpose was to encourage more and more taxpayers to adopt the new regime. It is hoped that union budget 2025 Some big announcements can be made to make this new regime more attractive. Currently, taxpayers get the option to choose between the old and new tax regime. In such a situation, it is very important to understand what is the difference between the two regimes and what are their advantages and disadvantages.
New tax regime: Started in 2020
the government has budget 2020 In new tax regime Announced. Its biggest feature was low tax rates, but the condition with this was that taxpayers could not avail deductions and exemptions.
Objective of the new regime
- It was introduced for taxpayers who do not normally claim deductions.
- Its objective was to introduce a simple and straightforward tax system for taxpayers.
Benefits of the new regime
- Lower tax rates.
- Simplicity and transparency.
- Avoid the hassles of deductions and exemptions.
Old tax regime: benefits of exemptions and deductions
Benefits of deduction
In the old regime, taxpayers got the benefit of various types of deductions and exemptions.
- Section 80C:
Taxpayers in this PPF, ELSS, Life Insurance Like you can claim tax exemption on investments.
- Section 80D:
Rebate on health insurance premium.
- Other deductions, such as tax exemption on interest on home loan, education loan, and donations.
Disadvantages of the old regime
- Tax rates higher than the new regime.
- Paperwork required to claim exemptions and deductions.
New tax regime: tax slabs
The tax rates in the new regime are as follows:
| income limit | Tax Rate (%) |
|---|---|
| 0 – 3 lakhs | no tax |
| 3 – 7 lakhs | 5% |
| 7 – 10 lakhs | 10% |
| 10 – 12 lakhs | 15% |
| 12 – 15 lakhs | 20% |
| more than 15 lakhs | 30% |
Properties
- Tax exemption on income up to Rs 3 lakh.
- Under the new regime on income up to Rs 7 lakh rebate Facility of, due to which no tax has to be paid up to this limit.
- Expansion of slabs, whereby lower tax rates apply on income up to Rs 15 lakh.
Old tax regime: tax slabs
The tax rates in the old regime are as follows:
| income limit | Tax Rate (%) |
|---|---|
| 0 – 2.5 lakh | no tax |
| 2.5 – 5 lakh | 5% |
| 5 – 10 lakhs | 20% |
| more than 10 lakhs | 30% |
Properties
- Income tax-free up to Rs 2.5 lakh.
- Despite getting the benefits of exemptions and deductions, the tax burden in the old regime is higher for the higher income group.
New Regime vs. Old Regime: Comparison
| Speciality | new tax regime | old tax regime |
|---|---|---|
| tax rates | Less | More |
| benefit of deduction | No | Yes |
| Simplicity | More | Less |
| tax free income limit | 3 lakh rupees | Rs 2.5 lakh |
| number of slabs | More | Less |
What changes are possible in Union Budget 2025?
1. Deduction and exemption options:
The government may add some deductions or exemptions to the new regime to make it more attractive.
2. Extension of Income Limit:
In the new regime, the tax-free income limit can be increased from Rs 3 lakh to Rs 4 lakh.
3. Change in slabs:
The income limit for 20% and 30% tax slabs may be increased in the new regime.
4. Consideration of ending the old regime:
The government may discontinue the old regime in future to promote the new regime.
