New vs Old Regime: Which is better in AY 24-25?

The new regime was introduced in budget 2020 wherein the tax rates were reduced significantly.

However, most people were still benefiting from the old regime as they had investments that allowed them to claim deductions and reduce their taxable income.

Now, to encourage people to opt for the new regime, in budget 2023, the government implemented some changes in the new regime and also made it the default regime. This means that your ITR will by default be filed under the new regime unless you specifically opt for the old regime.

To understand which regime is better, let us first know the changes implemented in budget 2023.

  • Higher rebate: Under the new regime, the rebate was made available till income of ₹7 lakhs. This means that you don’t have to pay any tax if your income doesn’t exceed ₹7 lakhs.

  • Revision of tax rates: The slabs under the new regime were revised and the basic exemption limit was increased to ₹3 lakhs from ₹2.5 lakhs.

  • Standard Deduction: The standard deduction of ₹50,000 was also extended to the new tax regime.

After these changes, the new regime may become a beneficial option for many. For someone with a salary income of up to ₹7.5 lakhs, the new regime will always be a better choice as there will be zero tax liability (after considering standard deduction and rebate u/s 87A. When the income surpasses this threshold, you will have to consider the following scenarios:

  1. When total deductions are ₹1.5 lakhs or less

    New Regime will always be beneficial.

  2. When total deductions are more than ₹3.75 lakhs

    Old Regime will be beneficial in any case where you have a deduction of more than ₹3.75 lakhs.

  3. When total deductions are between ₹1.5 lakhs to ₹3.75 lakhs

    This is when the beneficial regime depends upon the income level. Here’s a table that represents the breakeven point for deductions for various income levels.

    Hence,
    if deductions > breakeven point, old regime is better, and
    if deductions < breakeven point, new regime is better.

What deductions can be claimed under the new regime?

How do you choose the best regime for you?

After considering all the conditions above, you can calculate your effective taxable income after considering the allowed deductions under the respective regimes. After calculating the taxable income you can calculate your tax liability based on the respective slab rates. You can then choose the regime that results in lower tax liability. Also, make sure to specify in case you are opting for the old regime or else, your return will be processed under the new regime as it has been made the default regime from AY 24-25.

Reply to this thread with your queries and we’ll be happy to answer them!

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Hi,

At the start of the Financial Year 23-24 I selected Old Regime with my Employer. But now I see that New Regime would be beneficial for me in tax savings. I have few questions regarding this below :

  1. Will I be able to change regime now for filing the ITR ? If so how to do it ?
  2. I would get Form 16 based on Old Tax regime only. So how should I proceed converting it to Old Regime? What I need to consider while converting?
  3. Any prerequisite I have to consider before making any arrangement to opt for New Regime .

NOTE : I would be filing ITR-2 only.

Hey @enigma,

Yes, you can switch the regime at the time of filing the ITR. Your Form 16 for this year will be produced based on Old Regime only. You can let your employer know before the start of the next financial year to switch your regime and deduct TDS accordingly.

But, regardless, you can opt for the new regime for filing the ITR and the excess TDS deducted will be issued to you as a refund.

Hope this helps!

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Hi @Surbhi_Pal ,

Thanks for the information.

What about loss carry forwarding? Those will be not affected right ?

Hey @enigma,

No, carrying forward of losses will not be affected. Only losses from “income from house property” cannot be carried forward in the new income tax regime.

Hope this clarifies!

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Thank you @Surbhi_Pal

Hi @Surbhi_Pal ,

One more query regarding this. Do I have to submit Form 10IE if I want to opt for New Tax Regime ?
In case I file Form 10IE can I go back to Old Regime if need arises ?

As per our conversation in other post I have to file ITR-3 instead of ITR-2 because I have Intraday losses and FnO losses.

Hi,

From AY 24-25 onwards new regime has been made default. Hence, there’s no need to file form 10-IE and the same has been discontinued. However, as you will be filing ITR-3, you will have to file form 10-IEA in case you want to opt for the old regime.

Hope this helps!

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My income is under 4L. I filed ITR 3 last year. Which regime should I consider this year? Is it possible for me to change in the future?

Hey @Kanji_Pampania,

As the income is below ₹5 lakhs, there will be no tax liability under both regimes. Hence, you can opt for either of the regimes. But, as you have income from business/profession, to switch to the old regime(as the new regime is made default), you will have to file form 10-IEA. To avoid the hassle, you can file under the new regime.

Hope this helps!

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For business income under new tax regime, can I get deduction for items purchased for my office work?
If yes, is there any limit to that?

For professionals filing under the 44ADA Presumptive scheme, is it possible for them to switch to the old regime and later return to the new regime? If so, will they be allowed to switch back to the old regime in the future? I read somewhere that the switching is one-time for businesses and professionals, but it’s not clear in which direction.

Hey @sumitd13,

Yes, you can claim the expenses related to your business. There’s no such limit to the amount of expenses that can be claimed, however, the expense must be incurred solely for business purposes and you must maintain proof of the same.

Hope this helps!

Hey @robincsamuel,

In the case of individuals with business/professional income, you can only switch the regimes once. As the new regime is made default from FY 23-24 onwards, you will have to file form 10-IEA to opt for the old regime. You will have to file the same form again to opt out of the old regime. Once opted out, you will not be able to opt back in and will have to continue with the new tax regime for the subsequent FYs.

Here’s a detailed read on Form 10-IEA that might help!

Hope this helps!

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Hi @Surbhi_Pal ,

Sorry for the late reply.

In my situation at the beginning of the Financial Year I informed my Employer that I will be choosing Old Regime. But now I am thinking to opt to New Regime. In this case also I do not have to submit Form 10-IE, right ?

Hi @enigma,

Yes, as the new regime is made default, we are assuming that one will not be required to file form 10IE. The process will be more clear once the ITD releases forms for ITR-3.

1 Like

Thank you @Surbhi_Pal

Hi @Surbhi_Pal ,

  1. Is there any restrictions on switching tax regime? How many times one can change it during ones lifetime?

  2. Point 3 is not clear to me.

Hey @Shiv_Katira,

In case you have ‘income from business or profession’, and are filing ITR-3 or ITR-4, you can switch regimes only once.

Moreover in point 3, we have tried to derive a breakeven point for various income situations. Based on the income, if you have deductions more than the breakeven point, old regime would be beneficial and vise-versa.

Thanks @Surbhi_Pal for clarification.
Can salaried person switch the regime as many times as she wants?