Choose your Tax regime for FY 2024-25 wisely
April is an important month usually being the start of the financial year.
It is even more important for employees whose TDS is to be deducted every month by the employer.
Did you know you have to choose the tax regime in which you want to be taxed for the FY 2024-25 in the month of April itself?
As per circular issued by the CBDT on 05th April’2023 employees need to choose the tax regime in which they want to be taxed at the beginning of the financial year and inform the employer about it.
Since April is the very first month of the Financial Year, your employer will need to pay salary and deduct TDS for that month based on the Tax regime chosen by you.
What happens if you do not inform the employer about the tax regime you want to be taxed in?
Since, there were no changes made in the tax slabs in the 2024 Budget therefore as per Budget 2023, New Tax regime is the default regime for taxation. Hence, if you do not intimate the Tax Regime to your employer at the beginning of the year at the time of deducting the tax on first Salary of the financial year, it will be deemed that you are taxed under the new Tax regime and TDS will be deducted accordingly.
Therefore, in case you have tax saving investments under 80C or 80D or House Rent Allowance component in your salary and paying a rent for your house and you prefer to pay tax as per the Old Tax regime, you will need to inform your employer about it.
Can I opt for Old Tax regime when new Tax regime is the default regime?
Salaried individuals can opt out of the new Tax regime anytime they want. However, those with income from
Business/Profession can opt out of the new tax regime only once.
If I have opted for a certain tax regime with my employer for tax deduction can I change it later?
Yes, you can change the tax regime later at the time of filing the Income Tax return.
What are the key differences between New Old Tax regimes?
While the tax slab rates are much more beneficial in case of the new Tax regime, the Old Tax regime allows you to get deduction of the Tax saving investments made by you as well as certain other deductions and exemptions for allowances are allowed in the old Regime. There is no tax under the new regime up to a taxable income of Rs. 7 lakhs on the other hand there is no tax up to a taxable income Rs. 5 lakhs under the old regime.
Even the surcharge on those earning more than 5 Cr annually is 25% instead of 37%.
What are the Tax slab rates under the new tax regime?
The tax slabs under the New Tax regime are:
| Total Income | Rate of Tax |
|---|---|
| up to ₹3,00,000 | Nil |
| ₹3,00,001- ₹6,00,000 | 5% |
| ₹6,00,001- ₹9,00,000 | 10% |
| ₹9,00,001- ₹12,00,000 | 15% |
| ₹12,00,001- ₹15,00,000 | 20% |
| ₹15,00,001 and above | 30% |
The Comparison between the new and the old tax regimes slab rates are as follows
| Annual Income | Income Tax Slab Old Regime | New Regime FY |
|---|---|---|
| Up to Rs. 2.5 lakhs | Nil | Nil |
| ₹Rs. 2.50 – 3 lakhs | 5% | Nil |
| Rs.3 – 5 lakhs | 5% | 5% |
| Rs.5– 6 lakhs | 20% | 5% |
| Rs.6 – 9 lakhs | 20% | 10% |
| Rs. 9-10 lakhs | 20% | 15% |
| Rs. 10-12 lakhs | 30% | 15% |
| Rs. 12-15 lakhs | 30% | 20% |
| More than 15 lakhs | 30% | 30% |
Which tax regime is better if I have income up to Rs. 7 lakhs?
In case of Income up to 7 lakhs, the new tax regime is most likely the better option as individuals are eligible for a full tax rebate under section 87A up to an income of Rs. 7 lakhs. If you are a salaried person then with a standard deduction of Rs. 50,000/-, a total salary of Rs. 7.5 lakhs will be tax free.
When is each Tax regime more beneficial?
New Tax regime is more beneficial generally if:
• You have minimal investments in tax saving schemes or your total deductions and exemptions are much lesser as compared to what’s allowed as deductions or exemptions.
• Also, if you prioritize ease of filing over investments in tax saving schemes.
Old Tax regime is more beneficial generally if:
• You have invested heavily in tax saving schemes and claimed various exemptions and deductions such as HRA etc.
Some other points to help you decide on the choice of Tax regime are:
• The new regime will be advantageous when total deductions are less than 1.5 lakhs.
• When total deductions and exemptions exceed 3.75 lakhs, the old regime will be beneficial.
• When total deductions and exemptions range from 1.5 lakhs to 3.75 lakhs, the choice of tax regime is determined by your income level.
Which deductions are available in the new tax regime?
You can claim only a few selective deductions under the new tax regime such as standard deduction of Rs.50,000, employer’s contribution to NPS u/s 80CCD.
In case you have income from house- property, interest on Home Loan u/s 24b on let-out property is available up to a total limit of the taxable rent received.
Deduction on Family Pension Income (lower of 1/3rd of actual pension or 15,000) is applicable for the FY 23-24.