Income Tax Slab Rates: Breakeven Analysis Between Old and New Regime For The Financial Year 2024-25
Summary: The Indian income tax system offers two regimes: the old regime, which includes deductions and exemptions, and the new regime with lower tax rates but limited deductions. This article compares the tax liabilities under both regimes for the financial year 2024-25, with a breakeven analysis showing when the old regime becomes more favorable. The new regime offers a standard deduction of Rs 75,000 for salaried individuals but lacks additional deductions like 80C or HRA. The old regime, while having higher tax slabs, provides several exemptions and deductions, such as 80C (Rs 1.5 lakh) and HRA. The breakeven analysis demonstrates that the old regime becomes advantageous only if the taxpayer’s deductions exceed certain thresholds. For example, a taxpayer with deductions exceeding Rs 2.27 lakh would benefit more from the old regime. The new regime, however, offers simplicity with lower tax rates and a marginal relief of Rs 22,222 for incomes up to Rs 7,22,222. Taxpayers should evaluate both options to determine which regime offers the best tax savings based on their individual circumstances.
Page Contents
Introduction
The Indian income tax system offers two regimes: the old regime with deductions and exemptions, and the new regime with lower tax rates but limited deductions and exemptions.
This article presents a breakeven tax analysis, demonstrating point at which both regimes result in the same tax liability and when the old regime becomes more favorable.
Understanding the Slab Rates
New Regime
– Offers a standard deduction of Rs 75,000 for salaried income.
– No additional deductions (like 80C, 80D, Interest on housing loan, HRA, etc.).
– Slab rates are lower than those in the old regime.
Old Regime
– Offers a standard deduction of Rs 50,000 for salaried income.
– Allows various deductions such as 80C (Rs 1.5 lakh), 80D (health insurance), Interest on housing loan, HRA, and others.
– Higher slab rates, but these can be offset by deductions.
Breakeven Tax Calculation
The following table compares tax liabilities under both regimes for the financial year 2024-25 and shows how much investment in deductions is needed under the old regime to match the tax liability under the new regime.
Marginal Relief under New Regime
There is a marginal relief of up to Rs 22,222 under the new regime until the net taxable income reaches Rs 7,22,222. Marginal relief ensures that the excess tax liability is limited to the excess income over and above Rs 7,00,000. This helps taxpayers avoid a sudden jump in tax liability when their net taxable income crosses Rs 7,00,000..
How to read the table
Column A shows the net taxable income under the new regime. Column B displays the corresponding tax liability under the new regime. Column C indicates the net total income under the old regime that would result in the same tax liability. Column D shows the maximum additional deductions (excluding the standard deduction) that need to be claimed under the old regime to make it more beneficial than the new regime.
|
A |
B | C | D | E |
|
Net Taxable income after STD deduction New Reg |
Break even Tax | Net total income under old regime for the same tax | Exemption other than Std deduction for old regime | Remark |
| 7,00,000 | 0 | 5,00,000 | 2,25,000 | Winner – New regime |
| 7,15,000 | 15,000 | 5,12,500 | 2,27,500 | One should invest more than Rs 2,27,500 to reduce tax through old scheme |
| 7,22,222 | 22,222 | 5,48,611 | 1,98,611 | “ |
| 7,50,000 | 25,000 | 5,62,500 | 2,12,500 | “ |
| 8,00,000 | 30,000 | 5,87,500 | 2,37,500 | “ |
| 8,50,000 | 35,000 | 6,12,500 | 2,62,500 | “ |
| 9,00,000 | 40,000 | 6,37,500 | 2,87,500 | “ |
| 9,50,000 | 45,000 | 6,62,500 | 3,12,500 | “ |
| 10,00,000 | 50,000 | 6,87,500 | 3,37,500 | “ |
| 10,50,000 | 57,500 | 7,25,000 | 3,50,000 | “ |
| 11,00,000 | 65,000 | 7,62,500 | 3,62,500 | “ |
| 11,50,000 | 72,500 | 8,00,000 | 3,75,000 | “ |
| 12,00,000 | 80,000 | 8,37,500 | 3,87,500 | “ |
| 12,50,000 | 90,000 | 8,87,500 | 3,87,500 | “ |
| 13,00,000 | 1,00,000 | 9,37,500 | 3,87,500 | “ |
| 13,50,000 | 1,10,000 | 9,87,500 | 3,87,500 | “ |
| 14,00,000 | 1,20,000 | 10,25,000 | 4,00,000 | “ |
| 14,50,000 | 1,30,000 | 10,58,333 | 4,16,667 | “ |
| 15,00,000 | 1,40,000 | 10,91,667 | 4,33,333 | “ |
| 15,50,000 | 1,55,000 | 11,41,667 | 4,33,333 | “ |
| 16,00,000 | 1,70,000 | 11,91,667 | 4,33,333 | “ |
| 16,50,000 | 1,85,000 | 12,41,667 | 4,33,333 | “ |
| 17,00,000 | 2,00,000 | 12,91,667 | 4,33,333 | “ |
| 17,50,000 | 2,15,000 | 13,41,667 | 4,33,333 | “ |
| 18,00,000 | 2,30,000 | 13,91,667 | 4,33,333 | “ |
| 18,50,000 | 2,45,000 | 14,41,667 | 4,33,333 |
“ |
Conclusion
The decision between the old and new regime depends on available deductions. If the assesse has deductions and exemptions exceeding the amount in the column D, then the old regime more beneficial. Otherwise, the new regime offers simplicity and lower tax rates.
Before making a choice, taxpayers should calculate their tax liability under both regimes to maximize savings.
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