This article describes how to use the Arthgyaan goal-based investing tool as a calculator to determine if switching to the New Tax Regime makes sense from 1st April 2024.
This article is a part of our detailed article series on Union Budget 2024. Ensure you have read the other parts here:
This article shows you the method for lowering the effect of Tax Collected at Source (TCS) on foreign remittances and travel via RBI’s Liberalised Remittance Scheme (LRS) as per new rules introduced under Union Budget 2024.
This article analyses the changes in Budget 2024 that impact investors investing abroad under the RBI’s Liberalised Remittance Scheme.
This article shows how you can now offset TCS against your salary’s TDS providing significant relief and improving your cash flow.
This article explains the new of the reversal of the 12.5% without indexation tax rule to allow 20% with indexation for all properties bought before 23rd July 2024.
This article helps you calculate the minimum price above which you must sell your property to pay lower taxes under the taxation rule change as per Budget 2024.
This article clarifies the indexation benefit available to property purchased before 2001 from official income tax authority sources.
This article discusses the impact on investors’ psyche due to impact on Gold price due to government policy change.
This article shows you how debt, international and gold/silver mutual funds will get taxed as per the new capital gains tax declared in the Union Budget 2024.
This article shows you how to do tax harvesting for shares and mutual funds as per the new capital gains tax declared in the Union Budget 2024.
This article analyses the most important changes affecting your portfolio as per the Union Budget 2024.
This article analyses the change in taxation of stocks and mutual funds as per the Union Budget 2024.
This article analyses the change in NPS-related tax deductions as per the Union Budget 2024.
This article analyses the change in taxation of real estate sales in India as per Union Budget 2024.
For the Budget 2025 update, please refer to Union Budget 2025: which is the best tax regime to choose from 1st April 2025?
As per the Union Budget after the 2024 General Elections, the Finance Minister tweaked the New Tax Regime slabs slightly and kept the Old Tax Regime intact. We maintain that the new tax regime, which you can check using our easy-to-use calculator, is the better tax regime for most people.
Budget 2020 introduced the New Tax Regime (NTR) with the premise of lower overall taxes on income as long as tax deductions like 80C, 80D, HRA, etc., are foregone by the investor. In contrast, the Old Tax Regime (OTR) allows all of these deductions but with a higher tax on the post-deduction income. As per Union Budget 2023 (as announced on 23-Jul-2024),
Old tax Regime slabs for post-deduction income are:
New tax Regime slabs for post-deduction income are:
Note: The new tax regime slabs are as of Union Budget 2025 announced on 1-Feb-2025. Standard deduction is at ₹75,000 (same as Budget 2024) for income from salary and pension. Please keep in mind that offset of capital gains say under Section 111A, 112 etc (stocks and mutual funds) will not be available in the amounts above the threshold 4L no-tax threshold.
This means that income up to ₹12.75L (including the standard deduction) will be tax-free but if you have say ₹3 lakhs of equity long-term capital gains, it will still be taxable at 12.5% above 1.25L. Though taxable income starts after 4 lakhs as per the slabs, there is no tax until ₹12.75lakhs (₹12 lakhs for non-salaried) due to marginal relief.
There is also a concept of marginal relief, under Section 87A, up to ₹71,250 so that some one with ₹12,75,001 income is not hit with ₹71,250 tax just because of being over the threshold by ₹1. In Budget 2025, 87A relief has been raised to ₹60,000 for income up to ₹12 lakhs. 87A rebate is not available for NRIs.
Previous to Union Budget 2025, the new regime slab rates were:
In the Union Budget 2024 speech, the new tax regime slabs were tweaked to give an additional ₹17,500 tax reduction. Here is a worked-out example for an income of ₹20 lakhs demonstrating the ₹17,500 benefit.
| Tax Rate | Before Budget 2024 | Tax | After Budget 2024 | Tax | Benefit |
|---|---|---|---|---|---|
| 0% | 0-3L | 0 | 0-3L | 0 | 0 |
| 5% | 3-6L | 15,000 | 3-7L | 20,000 | -5,000 |
| 10% | 6-9L | 30,000 | 7-10L | 30,000 | 0 |
| 15% | 9-12L | 45,000 | 10-12L | 30,000 | 15,000 |
| 20% | 12-15L | 60,000 | 12-15L | 60,000 | 0 |
| 30% | Above 15L | 1,50,000 | Above 15L | 1,50,000 | 0 |
| 0% | Std. deduction 50k | -15,000 | Std. deduction 75k | -25,000 | 7,500 |
| Benefit | - | - | - | - | 17,500 |
Given how these slabs are structured, there is a break-even point based on the total amount of deductions you usually take so that one of the tax regimes leads to lower taxes. Now that NTR is the default option, it is essential to choose the tax regime correctly, as many companies will open up the choice in April.
Related:
How to plan tax deductions for salaried income?
An individual salaried taxpayer can switch between the old and new tax regimes once a year without restrictions. If you have yet to specify the regime to your employer, then the new tax regime will be used by default. You must also file your ITR on time if you wish to use the old tax regime.
Taxpayers can also declare one tax regime (old or new) to their employer and then switch to the other one when filing.
This article helps you decide, based on your tax planning and the deductions you wish to take, which regime will be beneficial for you for financial year FY2024-25, which starts on 1st April 2024. However, you should remember that if you declare the wrong tax regime and later add/remove deductions, more tax will get deducted. Therefore, you will have to ask for a refund when filing.
There are other financial tasks due in April. Here is a list: How should you plan your investments and taxes in April?.
This article allows you to calculate the best tax regime to choose based on your investments and salary structure.
We have covered this topic in detail here: Which tax regime is better if you want to invest in PPF or ELSS or have a home loan?
Union Budget 2024 added a new incentive for taxpayers to switch to the New Tax Regime by increasing the deduction available under non-government employer contributions to the NPS. It raised the eligibility amount from 10% to 14% of basic pay plus dearness allowance (DA).
Read more here: Union Budget 2024: Should you invest more in NPS now in the new tax regime?
As per Budget 2023/interim Budget 2024 and of course Union Budget 2024, the new tax regime is the default unless the taxpayer chooses the old regime.
You can switch between old and new and back anytime during tax-filing by 31st July. If you miss the 31st July deadline, you cannot switch regimes and have to choose the new regime.
These tax filers who must use ITR 4, have to fill Form 10-IEA to choose the old tax regime before 31st July. Otherwise, the new regime will apply.
If you have income from business or profession, you cannot switch regimes every year.
We will use Google sheets to create a simple calculator for this calculation. There is a link to download a pre-filled copy of the Google sheet via the button below.
Important: You must be logged into your Google Account on a laptop/desktop (and not on a phone) to access the sheet.
We show a few cases below.
As in all the cases above, the differentiating factor is the quantum of deductions. As long as the amount of deductions from 80C, 80D, home loan, HRA, etc., exceeds ₹3.75 lakhs, the old tax regime is better. Two key differences between the regimes are now the higher (75,000 instead of 50,000) standard deduction and the difference in how corporate NPS is handled.
The old tax regime, therefore, makes sense only if you have substantial valid investments via 80C, pay a good amount of medical insurance premium under 80D and have either a home loan or receive HRA.
Related:
How to best use 80C deductions to plan your taxes?
The new tax regime makes sense
If you are still determining your deductions, you can play around with your options in the calculator to see what works best for you.
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More posts...Disclaimer: Content on this site is for educational purpose only and is not financial advice. Nothing on this site should be construed as an offer or recommendation to buy/sell any financial product or service. Please consult a registered investment advisor before making any investments.
This post titled Union Budget 2024: which is the best tax regime to choose from 1st April 2024? (July 2024 update) first appeared on 23 Jul 2024 at https://arthgyaan.com
