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 as per Interim Budget 2024.
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 as per Interim Budget 2024.
What did Interim Budget 2024 say about personal income tax?
As an interim budget before the 2024 General elections, the Finance Minister did not propose major changes in personal income taxes. 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.
What is the new tax regime?
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 Budget 2023 (as well as the interim budget of Feb-2024),
Old tax Regime slabs for post-deduction income are:
0-2.5L - 0%
2.5-5L - 5%
5-10L - 20%
10L+ - 30%
New tax Regime slabs for post-deduction income are:
0-3L - 0%
3-7L - 5%
7-10L - 10%
10-12L - 15%
12-15L - 20%
15L+ - 30%
Note: The new tax regime slabs are as of Union Budget 2024 announced on 23-Jul-2024. Previous to Union Budget 2024, the new regime slab rates were: 0-3L - 0%, 3-6L - 5%, 6-9L - 10%, 9-12L - 15%, and 15L+ - 30% with ₹50,000 standard deduction.
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 correctly choose the tax regime, as many companies will open up the choice in April.
Did you know that we have a private Facebook group which you can join for free and ask your own questions? Please click the button below to join.
Switching regimes and default options
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 this financial year, i.e. 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.
Taxpayers without income from business or profession
As per Budget 2023/Interim 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.
Taxpayers with income from business or profession
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 regimes will apply.
If you have income from business or profession, you cannot switch regimes every year.
Using the calculator
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.
Case 2: Income 20 lakhs, usual deductions but no HRA
Case 3: Income 30 lakhs, usual deductions, home loan
Case 4: Income 30 lakhs, usual deductions, HRA
Case 5: Income 30 lakhs, usual deductions, no HRA, no home loan
Summing up
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 (we will ignore the ₹50,000 standard deduction since that is the same for both regimes), the old tax regime is better.
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.
if you have a high enough income so that 80C is taken care of by default by EPF but do not have a home loan or no HRA since it could be very close or less to 10% of your basic pay
if you stay in your own home without a home loan and do not have to pay rent or EMI
if you have planned your investments as per goal-based investing and do not have an excess allocation to debt investments like PPF or insurance plans
If you are still determining your deductions, you can play around with your options in the calculator to see what works best for you.
What's next? You can join the Arthgyaan WhatsApp community
You can stay updated on our latest content and learn about our webinars.
Our community is fully private so that no one, other than the admin, can see your name or number. Also, we will not spam you.
For resident Indians 🇮🇳:
For NRIs 🇺🇸🇬🇧🇪🇺🇦🇺🇦🇪🇸🇬:
Share on WhatsApp:
To understand how this article can help you:
If you have a comment or question about this article
The following button will open a form with the link of this page populated for context:
If you liked this article, please leave us a rating
The following button will take you to Trustpilot:
Discover an article from the archives
Previous and next articles:
Health InsuranceFAQ
Frequently asked questions (FAQs) on Cashless Everywhere facility in health insurance
This article gives you a list of common questions and their answers on the concept of “Cashless Everywhere” introduced for health insurance.
Published: 31 January 2024
4 MIN READ
FAQ
Frequently asked questions on Exchange Traded Funds (ETFs): the complete guide
This article compiles an exhaustive list of FAQs on the concept of Exchange Traded Funds (ETFs).
Published: 2 February 2024
1 MIN READ
Latest articles:
International InvestingBudget
Budget 2024: How New Changes Make International Investing under LRS Easier for Indians?
This article analyses the changes in Budget 2024 that impact investors investing abroad under the RBI’s Liberalised Remittance Scheme.
Published: 8 September 2024
4 MIN READ
Mutual Funds
Franklin India Ultra Short Duration Fund portfolio analysis: Is Franklin Templeton creating the same portfolio that shut its funds in Apr 2020?
This article analyses the portfolio of the Franklin India Ultra Short Duration Fund to see if there any potential red flags similar to what led to the closure of six Franklin debt funds in April 2020.
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 Interim Budget 2024: which is the best tax regime to choose from 1st April 2024? first appeared on 01 Feb 2024 at https://arthgyaan.com