In the budget of 2020, a new tax regime was announced by the finance minister to make the previous tax structure simple. However, this structure was not made into effect, and also, people were not very excited about this tax structure.
Later in 2023, this tax regime was further modified to streamline it even more and it aimed to benefit people with income less than 15 lakhs. With the latest tax law, it was made easier for individual taxpayers to file taxes, as it removed a number of deductions like house rent allowance, investment deductions (80C, 80D, 80E) , home loan interest deduction and other slab wise division.
Tax payers were made available two options to choose from. You can either choose new regime by giving up on deductions but lower taxes, or choose the previous regime with allowance. Below we will discuss how individuals with income less than 15 lakhs will benefit by switching to the new tax regime.
Who will benefit most from the new tax regime 2024?
Choosing whether to stick with the old tax structure or benefit for the new one depends on how much your annual income is.
- Low and middle income group – People with income upto 15 lakhs will benefit from the new tax slab rule as they do not have to pay any tax on income upto 3 lakhs.
- If you are new to tax planning – Individuals who are planning taxes for the first time will find it easier as the new regime removes complexity like (allowance and deductions) along with easier slab distributions.
- No Investments – If you do not utilise any tax-saving instruments and deductions like LIC premiums, Public Provident Funds (PPF) etc, and your income is less than 15 Lakhs it’s wiser to choose the newer tax regime.
Taxes applicable if you have ₹10 Lakhs Annual Income
New Tax Regime:
| Taxable Income after Standard Deduction | ₹9,50,000 |
| Tax on ₹3,00,000 | Nil |
| Tax on next ₹3,00,000 (@5%) | ₹15,000 |
| Tax on next ₹3,00,000 (@10%) | ₹30,000 |
| Tax on next ₹50,000 (@15%) | ₹7,500 |
| Total Taxes | ₹52,500 |
Old Tax Regime (Without Additional Deductions):
| Taxable Income after Standard Deduction | ₹9,50,000 |
| Tax on ₹2,50,000 | Nil |
| Tax on next ₹2,50,000 (@5%) | ₹12,500 |
| Tax on next ₹4,50,000 (@20%) | ₹90,000 |
| Total Tax | ₹1,02,500 |
Old Tax Regime (With Section 80C Deduction):
| Taxable Income after Deductions | ₹8,00,000 (₹10,00,000 - ₹50,000 Standard Deduction - ₹1,50,000 Section 80C) |
| Tax on ₹2,50,000 | Nil |
| Tax on next ₹2,50,000 (@5%) | ₹12,500 |
| Tax on next ₹5,00,000 (@20%) | ₹70,000 |
| Total Tax | ₹82,500 |
Taxes you have to pay if you have ₹15 Lakhs Annual Income
New Tax Regime:
| Taxable Income after Standard Deduction | ₹14,50,000 |
| Tax on ₹3,00,000 | Nil |
| Tax on next ₹3,00,000 (@5%) | ₹15,000 |
| Tax on next ₹3,00,000 (@10%) | ₹30,000 |
| Tax on next ₹3,00,000 (@15%) | ₹45,000 |
| Tax on next ₹2,50,000 (@20%) | ₹50,000 |
| Total Tax | ₹140,000 |
Old Tax Regime (Without Additional Deductions):
| Taxable Income after Standard Deduction | ₹14,50,000 |
| Tax on ₹2,50,000 | Nil |
| Tax on next ₹2,50,000 (@5%) | ₹12,500 |
| Tax on next ₹5,00,000 (@20%) | ₹1,00,000 |
| Tax on next ₹5,00,000 (@30%) | ₹1,50,000 |
| Total Tax | ₹2,62,500 |
Old Tax Regime (With Section 80C Deduction):
| Taxable Income after Deductions | ₹13,00,000 (₹15,00,000 - ₹50,000 Standard Deduction - ₹1,50,000 Section 80C) |
| Tax on ₹2,50,000 | Nil |
| Tax on next ₹2,50,000 (@5%) | ₹12,500 |
| Tax on next ₹5,00,000 (@20%) | ₹1,00,000 |
| Tax on next ₹3,00,000 (@30%) | ₹90,000 |
| Total Tax | ₹2,02,500 |
The above calculations takes into account standard deduction of Rs 50,000 that new regime offers for salaried and pensioners. Family pensioner can also claim a standard deduction of Rs 15,000 under the new tax regime. The highest surcharge rate of 37% has been reduced to 25% under the new tax regime. For Additional Deductions, we have considered reduction of ₹1,50,000 for reference only, and it will vary according to your investments.
What should you choose?
- At ₹10 Lakhs Income: New Tax Regime will be more beneficial than previous tax regime and will provide lower tax liabilities.
- Income upto ₹15 Lakhs: For someone earning ₹15 lakhs per year, the new tax system is better. It offers lower tax liability compared to older slabs. Especially if you don’t claim any additional deductions under the old system, the new tax system provides significant tax savings over the old system without deductions.
Conclusion
Deciding between new or old tax rules will be important, specially for people who fall in the 15 Lakh tax slab. The new tax regime was introduced to encourage more and more individuals to file taxes. In India, only 2-3% of people file taxes compared to 53% in USA (source – urban.org )
The new rule also seems to be more beneficial for middle class people. So do you think the middle class will get tax relief and the percentage of people filing taxes will grow? If this is actually true, we can expect overall tax rates to reduce further in years to come.
