TAX REGIME: OLD & NEW
The key difference between the old and new income tax regimes lies in how they handle exemptions and deductions. Under the old regime, taxpayers can claim substantial deductions, including those specified in Section 80C, Section 80D, and Section 80TTA of the Income Tax Act. Conversely, individuals choosing the new regime can enjoy reduced tax rates depending on their income bracket, without as many deductions available.
Under the NEW TAX REGIME, the income tax slabs are structured as follows:
· No tax will be imposed on income up to ₹3 lakh.
· Income ranging between ₹3-6 lakh will be taxed at 5 per cent, with the provision of tax rebate under Section 87A*.
· Income between ₹6-9 lakh will incur a tax rate of 10 per cent, with a tax rebate under Section 87A* applicable for income up to ₹7 lakh.
· For income between ₹9-12 lakh, the tax rate will be 15 per cent.
· Income falling between ₹12-15 lakh will be taxed at a rate of 20 per cent.
· Income exceeding ₹15 lakh will be taxed at 30 per cent.
In the OLD TAX REGIME, the income tax slabs are structured as follows:
· Income up to ₹2.5 lakh is exempt from taxation.
· Income ranging from ₹2.5 lakh to ₹5 lakh is taxed at a rate of 5 per cent.
· Personal income falling between ₹5 lakh and ₹10 lakh is taxed at a rate of 20 per cent.
· Personal income exceeding ₹10 lakh is taxed at a rate of 30 per cent.
Various Deductions (not comprehensive):
SECTION 80C provides deductions on various investments up to ₹ 1.5 lakh per year from your taxable income. In comparison, SECTION 80CCC provides a deduction of up to ₹ 1.5 lakh per annum for the contribution made by an individual towards specified pension funds.
SECTION 80D of the income tax act allows tax deductions of up to Rs 25,000 every financial year on health insurance premiums. With Section 80D you can also avail an additional deduction Rs 5,000 on any expenses incurred for preventative health check-ups.
SECTION 80TTA of the Income Tax Act, 1961 provides a deduction of up to Rs 10,000 on the income earned from interest on savings made in a bank, co-operative society or post office. There is no deduction for interest earned from fixed deposits and recurring deposits.
*SECTION 87A of the Income Tax Act, 1961, provides for a rebate in income tax payable for resident individuals with taxable income up to a certain limit. For FY 2024-25 (AY 2025-26), the rebate limit will continue as before i.e. up to Rs. 7,00,000 under the new tax regime.
This means that a resident individual with taxable income up to Rs. 7,00,000 can avail of a rebate of Rs. 25,000 or the amount of tax payable, whichever is lower. Under the old tax regime, the rebate limit remains the same at Rs. 5,00,000, and the rebate amount is Rs. 12,500.
Example of Rebate u/s 87A:
(FY 2024-25) Income Source | Amount under Old Tax Regime | Amount under New Tax Regime |
Gross Total Income | Rs. 7 lakhs | Rs. 7.5 lakhs |
(-)Standard Deductions | Rs. 50,000 | Rs. 50,000 |
(-) Section 80C Deductions | Rs. 1.5 lakhs | -- |
Total Taxable Income | Rs. 5 lakhs | Rs. 7 lakhs |
Income Tax Payable | Rs. 12,500 | Rs. 25,000 |
(-) Section 87A Rebate | Rs. 12,500 | Rs. 25,000 |
Tax payable | NIL | NIL |
As the new income tax regime is automatically applied, it's crucial for employed individuals to inform their employer at the beginning of the financial year regarding their preferred tax regime. If you fail to notify your employer, you can still switch between regimes while filing your income tax return, provided it's done within the due date.
Author:
CS Anupam Anand,
Assistant Manager,
CS & Legal,
Bapudham Milk Producer Company Limited
Proofreading and valuable inputs from:
Ms. Saloni,
Executive,
CS & Legal
Bapudham Milk Producer Company Limited
