The Finance Minister, Nirmala Sitharaman presented the Budget 2020 on the 1st of February 2020. Finance Minister had many major announcements including the introduction of the New Tax Regime.
The new tax regime was introduced to simplify taxes and reduce the burden of compliance on taxpayers. The major difference between both of these tax regimes is income tax slab rates as well as the ability to claim exemptions and deductions.
Even 2 years post the introduction of the New tax regime under section 115BAC, the majority of taxpayers filed their ITR under the old tax regime. Hence to promote this new regime in Union Budget 2023-24 the tax slabs were revised for the new regime along with other changes.
Tax Slab Rates
Under the New Regime, new tax slabs were introduced with existing rates which are slashed on income up to INR 15 Lakh. The tax slab rates as per the ‘New Income Tax Regime’ and ‘Old Income Tax Regime’ are as follows:
| Income Range | Rates as per Old Regime | Rates as per New Regime (up to AY 2023-24) |
| Up to INR 2,50,000 | Nil | Nil |
| INR 2,50,001 – 5,00,000 | 5% | 5% |
| INR 5,00,001 – 7,50,000 | 20% | 10% |
| INR 7,50,001 – 10,00,000 | 20% | 15% |
| INR 10,00,001 – 12,50,000 | 30% | 20% |
| INR 12,50,001 – 15,00,000 | 30% | 25% |
| Above INR 15,00,000 | 30% | 30% |
| Income Range | Rates as per New Tax Regime (AY 2024-25 onwards) |
| Up to INR 3,00,000 | Nil |
| INR 3,00,001 – 6,00,000 | 5% |
| INR 6,00,001 – 9,00,000 | 10% |
| INR 9,00,001 – 12,00,000 | 15% |
| INR 12,00,001 – 15,00,000 | 20% |
| Above INR 15,00,000 | 30% |
Basic Exemption Limit
Under the new tax regime, the basic tax exemption limit will remain the same for all assesses including senior citizens. Therefore, in case you opt for the new regime, there will be no higher tax exemption for the senior and super senior citizens.
| Age | New Regime Exemption Limit (AY 2024-25 onwards) |
New Regime Exemption Limit (up to AY 2023-24) |
Old Regime Exemption Limit |
| People Below 60 Years of Age | INR 3,00,000 | INR 2,50,000 | INR 2,50,000 |
| People Between 60 to 80 Years of Age | INR 3,00,000 | INR 2,50,000 | INR 3,00,000 |
| People Above 80 Years of Age | INR 3,00,000 | INR 2,50,000 | INR 5,00,000 |
Changes in Deductions and Exemptions under the New Tax Regime
According to the announcement made in the Budget 2020, there have been major removals of tax exemptions and deductions. This has made tax compliance less tedious. Here is the list of what deductions have stayed and what deductions have been removed:
| What is not covered in New Tax Regime | What is covered in New Tax Regime |
|
Income from Life Insurance |
|
|
Money received as a scholarship for education, etc. |
|
|
Standard deduction of Rs 50,000 available for salaried individuals (up to AY 2023-24) |
Leave encashment on retirement |
|
Agricultural Income |
|
|
Entertainment allowance deduction and professional tax ( For government employees) |
Standard Deduction on Rental Income and Standard Deduction of INR 50,000 for Salaried individuals, pensioners and of INR 15,000 for family pensioners (AY 2024-25 onwards) |
|
Tax relief on interest paid on home loan for self-occupied or vacant property u/s 24 |
Retrenchment compensation |
|
Deduction of INR 15,000 from the family pension (Up to AY 2023-24) |
VRS proceeds up to INR 5 lakhs |
|
Tax-saving investment deductions under Chapter VI-A (80C,80D, 80E,80CCC, 80CCD, 80DD, 80DDB,, 80EE, 80EEA, 80EEB, 80G, 80GG, 80GGA, 80GGC, 80IA, 80-IAB, 80-IAC, 80-IB, 80-IBA, etc) (Except, deduction under Section 80CCD(2), 80JJA, and 80CCH) |
Death cum retirement benefit |
Changes under Income from House Property in the New Tax Regime
Changes in Deductions on Home Loan interest – Section 24(b)
No claim of home loan Interest on Self Occupied House Property: Individuals who have taken a home loan on their self-occupied property and are paying interest on it, can not claim that interest deduction under Section 24(b).
A claim of home loan Interest on Rental House Property: Under the new income tax regime, individuals can claim interest on home loans for let-out property only up to the amount of their rental income declared under the head house property income.
The setting off of losses from house property income
As per the new income tax regime, losses from house property can only be set off against other income from house property. Moreover, losses from income from house property cannot be carried forward in the new income tax regime.
Deduction for first-time Homebuyers
Deduction u/s 80EE & Section 80EEA gives relief on interest paid on home loans for first-time home buyers. This deduction is no longer available for taxpayers following the new income tax regime.
Deductions for business expenditure under New Tax Regime
Following deductions and exemptions not allowed for business income:
- Additional depreciation under section 32.
- Investment allowance under section 32AD
- Sector-specific business deductions under sections 33AB and 33ABA
- Expenditure on scientific research under section 35
- Capital expenditure under section 35AD
- Exemption under section 10AA for SEZ units
Setting-Off Business/Profession Loss
In the case of a business income, an individual/ HUF cannot set off the brought forward business loss or unabsorbed depreciation. Further, they cannot carry forward these B&P losses and unabsorbed depreciation relating to deductions/exemptions withdrawn under clause (i) of sub-section (2) of section 115BAC.
In simple terms, you can carry forward short-term & long-term capital losses and derivatives trading losses in the new tax regime. Since, only the losses relating to deductions & exemptions withdrawn under clause (i) of sub-section (2) of section 115BAC cannot be set off or carried forward, for eg: House property losses, additional depreciation, etc.
Comparison of Old and New Tax Regimes
There cannot be a straight answer to the question that which tax regime is better to opt for. It depends on each taxpayer’s situation and financial position.
Looking at the reduction in tax rates new system looks better but due to the non-availability of various deductions or exemptions, it is advisable to do a comparative evaluation under both regimes before you opt for the new regime or decide to continue with the old one.
Here are some examples of how much tax a person must pay in the old and new regimes without any exemptions for the same salary.
A PERSON WITH AN ANNUAL INCOME OF INR 7,50,000
Suppose a person aged 45 years is having an income of INR 7,50,000 which includes INR 3,50,000 from Salary, INR 2,00,000 profit from trading, INR 50,000 Interest on FDs, and the remaining INR 1,50,000 dividend. He has made an investment of INR 1,50,000 under section 80C and INR 20,000 under section 80D.
Solution
The following table shows the tax calculation under different regimes:
| Particulars | Tax under Old Regime | Tax under New Regime (up to AY 2023-24) |
Tax under New Regime (AY 2024-25 onwards) |
| Income from Salary | INR 3,50,000 | INR 3,50,000 | INR 3,50,000 |
| Less: Standard Deduction | (INR 50,000) | NA | (INR 50,000) |
| Profit from Business & Profession | INR 2,00,000 | INR 2,00,000 | INR 2,00,000 |
| Income from Other Sources | INR 2,00,000 | INR 2,00,000 | INR 2,00,000 |
| Total headwise Income | INR 7,00,000 | INR 7,50,000 | INR 7,00,000 |
| Less: Deduction under chapter VI-A | |||
| Section 80C Deduction | (INR 1,50,000) | NA | NA |
| Section 80D Deduction | (INR 20,000) | NA | NA |
| Net Taxable Income | INR 5,30,000 | INR 7,50,000 | INR 7,00,000 |
| Total Tax Liability | INR 18,500 | INR 37,500 | INR 25,000 |
| Less: Rebate u/s 87A | NA | NA | (INR 25,000) |
| Health and education Cess 4% | INR 740 | INR 1,500 | NA |
| Net Tax Payable (annually) | INR 19,240 | INR 39,000 | NA |
A PERSON WITH AN ANNUAL INCOME OF INR 20,00,000
Suppose a person aged 50 years is having an income of INR 20,00,000 which includes INR 16,00,000 from Salary, INR 2,00,000 profit from trading, INR 50,000 from Interest on FDs, and the remaining INR 1,50,000 dividend. He has made an investment of INR 1,50,000 under section 80C and INR 20,000 under section 80D.
Solution
The following table shows the tax calculation under different regimes:
| Particulars | Tax under Old Regime | Tax under New Regime (up to AY 2023-24) |
Tax under New Regime (AY 2024-25 onwards) |
| Income from Salary | INR 16,00,000 | INR 16,00,000 | INR 16,00,000 |
| Less: Standard Deduction | (INR 50,000) | NA | (INR 50,000) |
| Profit from Business & Profession | INR 2,00,000 | INR 2,00,000 | INR 2,00,000 |
| Income from Other Sources | INR 2,00,000 | INR 2,00,000 | INR 2,00,000 |
| Total headwise Income | INR 19,50,000 | INR 20,00,000 | INR 19,50,000 |
| Less: Deduction under chapter VI-A | |||
| Section 80C Deduction | (INR 1,50,000) | NA | NA |
| Section 80D Deduction | (INR 20,000) | NA | NA |
| Net Taxable Income | INR 17,80,000 | INR 20,00,000 | INR 19,50,000 |
| Total Tax Liability | INR 3,46,500 | INR 3,37,500 | INR 2,85,000 |
| Less: Rebate u/s 87A | NA | NA | NA |
| Health and education Cess 4% | INR 13,860 | INR 13,500 | INR 11,400 |
| Net Tax Payable (annually) | INR 3,60,360 | INR 3,51,000 | INR 2,96,400 |
Moreover, Taxes on incomes taxable at special rates such as long-term and short-term capital gains will be the same in the new as well as old regime.
This table below gives a broad idea about the tax slab based on the income range applicable up to AY 2023-24:
Pros & Cons of New Tax Regime
- The pros of the new regime are as follows:
- Reduced tax rates and compliance: The new regime provides for concessional tax rates. Further, as most of the exemptions and deductions are not available, the documentation required is lesser, and filing taxes is simpler.
- No need to lock in funds in the prescribed instruments for the specified period:
- Under the new regime, the benefit of deduction/allowances would not be the criteria for availing the tax exemption. This may be helpful for those categories of taxpayers who may not subscribe to the specified modes of investments, as most of the investments have a lock-in period, before which it cannot be withdrawn. They can invest in open-ended mutual funds/instruments/deposits, which provides them with good returns as well as the flexibility of withdrawal as well.
- Increased liquidity in the hands of the taxpayer:
- The reduced tax rate would provide more disposable income to the taxpayer, who could not invest in specified instruments due to certain financial or other personal reasons.
- The flexibility of customizing the investments:
- The existing tax regime restricts the investment choices for the taxpayer as they have to make the investments only in the instruments specified. However, the new regime provides taxpayers with the flexibility of customizing their investment choices.
- The cons of the new regime are as follows:
- Non-availability of certain specified tax deductions:
- The new tax regime does not allow the taxpayer to avail of certain specified deductions.
- Discourages the ‘Savings’ Culture:
- Since investment schemes will not provide any tax benefits under chapter VI-A.
- Non-availability of certain specified tax deductions:
FAQs
Yes, you can claim an interest deduction against rental income earned from both of them under the new tax regime.
If an individual forgets to fill the form i.e. Form 10-IE, at the time of filing ITR, then they may be disallowed the tax rates available under the new tax regime. The tax department will calculate their income tax liability based on the existing/old tax regime up to AY 2023-24. However as in Budget 2023 new regime is announced as default, from AY 2024-25 ITD shall process ITR under old tax regime if not specifically opted for old tax regime.
These year i will go for Old Tax Slab. since 80G & Other Stock Brokage Charges.
But for Next Year i want to OPT For New Tax Slab as it is Best.
But whatever My Loses in Short Term Capital Gain for these Year.
Can i carry forward STCG Loses in New Tax Slab.
Since these year i will use Old Tax Slab & Next Year i will Use New Tax Slab…
Hi @Aadil_Nakhwa,
Irrespective of any regime you’re opting for, you’re eligible to carry forward your short-term capital losses.
Hope this helps.
Hi
Is deduction upto Rs.10,000/- on savings account, applicable under Sec 80TTA, available under the new tax regime, be it AY 2023-24 or 2024-25?
Hi @gdshan,
As per the Income Tax Act, deduction on savings account interest under section 80TTA is only available in the old tax regime.
hence, if you opt for a new tax regime, you’re not eligible to claim such a deduction.
Hope it helps.
Hi
Thanks for clarifying.
Hi @Heath_Slayer
FY 2023-24 onwards, the standard deduction of ₹50,000 will be available under the new regime as well.
Also, the tax rebate limit has been raised to 7 lakhs under the new regime.
Considering there are no other deductions, the new regime will be beneficial as the tax liability comes to nearly ₹0. If in case tax liability arises as well, the tax rates have also been revised, so tax liability under the new regime will be less than the old regime.
Hope this helps.
I am working in a private company. Also I have done intraday trading in FY2022-FY2023 (Jan 2023-Mar2023). I am going to file ITR3 with old regime (Old regime was done through TDS.)
For FY2023-2024 , I am planning to shift to new regime (That looks beneficial for me as of now). Will I be able to switch back to old regime may be few years down the line? If yes, how many times?
Please explain regarding switching of regimes for a person who works in private company and doing intraday trades at same time?
Hi @Justin
A resident individual can switch regimes every year only if he has no business income.
If you’re working in a private company and also involved in intraday trading, which is a speculative business income, you will not be able to switch regimes more than once.
Read more about switching regimes.
Hope this helps.
Hi @Shrutika_Shah
I report my income under “income from business” and I do not have salary income. For the AY 2023-24, can I choose filing ITR3 under new tax regime now? I did not file form10E as yet.
Also, can you please guide on which business should I choose for an F&O trader while filing Form 10IE