New Tax Regime To Come Into Force From Today? Finance Ministry Clarifies; Know Tax Slabs Under Both Tax Regimes

New Vs Old Income Tax Regime FY 2024-25: The Finance Ministry stated on Sunday that there would be no new changes to the tax system that will go into effect on April 1. The finance ministry denied misinformation surrounding the implementation of the New tax system. On Sunday night, the finance ministry issued a post on X (previously Twitter) to clear up misunderstandings about the new tax regime. The ministry stated in an explanatory note that the new tax system has lower rates but fewer allowances and deductions.

The finance ministry said that it had been brought to their attention that some social media sites were spreading misleading information about the new tax system. Therefore, it is stated that no change is going to take place from 01.04.2024. Compared to the already existing system, a new tax system was introduced in Section 115BAC(1A) under the Finance Act 2023, it added further.

Old And New Tax Regime

The old system allowed for a variety of deductions and exemptions under Sections 80C (Investment, Expenditure), 80D (Medical Expenses), HRA (House Rent Allowance), and LTA (Leave Travel Allowance).

From 0 to up to Rs 2.5 lakh - No tax

Above 2.5 Lakh to up to 5 Lakh - 5% tax

Above 5 Lakh To up to 10 Lakh - 20% tax

From 10 lakh to above - 30% tax

However, it comes with a more complicated structure that includes higher tax brackets in some categories.

The new system introduced in 2020 has lower tax rates, but it has done away with most of the deductions and exemptions. This provides a convenient filing process, but it may not be advantageous for everyone.

From 0 to up to Rs 3 lakh - No tax

Above 3 Lakh to up to 6 Lakh - 5% tax

Above 6 Lakh To up to 9 Lakh - 10% tax

Above 9 Lakh to 12 lakh - 15% tax

Above 12akh to 15 Lakh -20% tax

Above 15 Lakh - 30%

The new tax system provides benefits to individuals who earn up to Rs. 7.5 lakh because they are exempted from paying taxes. In addition, Those with earnings up to Rs 10 lakh and without any investments can get a lower tax slab under this plan.

However, Individuals with earnings over Rs 10 lakh may lose out on potential tax breaks if they choose to use the new income tax regime. By adopting the old system, they can significantly reduce their tax burden by investing in tax-saving instruments that fall under Sections 80C, 80D, and other relevant Sections.

Which regime one should choose?

There is no one-size-fits-all answer, and the answer depends on your financial situation and objectives. However, few things to keep in mind.

Total Income-  Under the old system, Section 87A exemption and Lower-income earners (up to Rs. 7.5 lakh) generally benefit from the standard deduction of Rs 50,000.

Deductions and Exemptions- If you make extensive use of deductions like 80C, 80D, HRA, and LTA, the old system may be more suitable for you. Calculate the total amount of deductions you are eligible for, and then compare it to the tax benefit of lower rates under the new system.

Investment portfolio- The new system restricts exemptions for popular tax-saving instruments like PPF, NPS contributions over the employer's share, and ELSS mutual funds. If these are an important part of your investment strategy, the old system may be preferred.