Income Tax Returns (ITR) | New Tax Regime vs. Old Tax Regime

Section 115BAC of the Income Tax Act introduces an alternative tax regime for Individuals, Hindu Undivided Families (HUFs), Associations of Persons (AOPs), Bodies of Individuals (BOIs), and Artificial Juridical Persons (AJPs), collectively referred to as ‘eligible assesses.’ Under this regime, eligible assesses can opt to be taxed at reduced rates based on their income brackets.

The tax rates under the new regime are as follows:

To qualify for the new tax regime, an assessee must adhere to the following conditions:

• The total income must be computed without claiming specified exemptions and deductions
• The total income must be computed without setting off losses or depreciation carried forward from previous years if these are attributable to specified exemptions and deductions
• The total income must be computed without setting off any loss under the head “Income from house property” against any other head of income
• The total income must be calculated after claiming depreciation in the prescribed manner. If the depreciation rate for any block of assets exceeds 40%, it is restricted to 40%
• The total income must be computed without claiming any exemptions or deductions for allowances or perquisites provided under any other law currently in force

Choosing between the old and new tax regimes depends on the amount of exemptions and deductions available to the assessee. If an individual has no deductions or exemptions to claim, it is generally beneficial to opt for the new tax regime. However, if an individual can claim deductions or exemptions such as those under Section 80C, Section 80D, House Rent Allowance, or interest on a housing loan under Section 24, it is advisable to calculate taxes under both regimes to determine which option is more advantageous.

Opting for the lower tax rates under the new tax regime requires computing the total income without claiming the following exemptions and deductions:

• Leave Travel Concession [Section 10(5)]
• House Rent Allowance [Section 10(13A)]
• Official and Personal Allowances (other than those prescribed) [Section 10(14)]
• Allowances to MPs/MLAs [Section 10(17)]
• Exemption for Income of Minor [Section 10(32)]
• Deduction for Units in Special Economic Zones (SEZ) [Section 10AA]
• Entertainment Allowance [Section 16(ii)]
• Professional Tax [Section 16(iii)]
• Interest on Housing Loan (for self-occupied house property) [Section 24(b)]
• Additional Depreciation for New Plant and Machinery [Section 32(1)(iia)]
• Deduction for Investment in New Plant and Machinery in Notified Backward Areas [Section 32AD]
• Deduction for Tea, Coffee, or Rubber Business [Section 33AB]
• Deduction for Prospecting, Extraction, or Production of Petroleum or Natural Gas in India [Section 33ABA]
• Deduction for Donations to Approved Scientific Research Associations, Universities, Colleges, or Institutes [Section 35(1)(ii)]
• Deduction for Payments to Indian Companies for Scientific Research [Section 35(1)(iia)]
• Deduction for Donations to Universities, Colleges, or Institutions for Social Science or Statistical Research [Section 35(1)(iii)]
• Deduction for Donations for Scientific Research or Expenditure on Scientific Research [Section 35(2AA)]
• Deduction for Capital Expenditure on Specified Businesses (e.g., cold chain facility, warehousing facility) [Section 35AD]
• Deduction for Expenditure on Agriculture Extension Projects [Section 35CCC]
• Deductions under Sections 80C to 80U pexcept those under Section 80JJAA, Section 80CCD(2), Section 80CCH(2), and Section 80LA(1A)) [Chapter VI-A]

The following table shows the break-even points for deductions at various income levels, indicating where the tax liability is the same under both the old and new tax regimes.

For the financial year 2023-24, if you have a salary of Rs. 14 lakhs and paid Rs. 4 lakhs to repay the principal of a home loan, Rs. 50,000 for health insurance, and Rs. 1.5 lakh towards the interest on the home loan; the following comparison will help determine the best tax regime for you.

Here’s a comparison in a table format for an individual under 60 years of age:

In this example, the old tax regime results in a lower tax liability (Rs. 1,17,000) compared to the new tax regime (Rs. 1,24,800). Therefore, you should opt for the old tax regime.

Effective from the Assessment Year 2024-25, the new tax regime will be the default option for Individuals, Hindu Undivided Families (HUFs), Associations of Persons (AOPs), Bodies of Individuals (BOIs), and Artificial Juridical Persons (AJPs). If an assessee prefers the old tax regime, they must explicitly opt out of the new tax regime.

For those with income from a business or profession, opting out of the new tax regime and switching to the old tax regime requires furnishing Form No. 10-IEA on or before the due date for filing the income return under Section 139(1). Once this option is exercised, it applies to the year it is chosen and the subsequent assessment year.

Form No. 10-IEA can be filed online at Income Tax e-Filing Portal by navigating to: e-file > Income Tax forms > file Income Tax Forms.

For those with income other than from a business or profession, the choice of the tax regime can be indicated in the Income Tax Return (ITR) while filing the income return.

The Income Tax Act provides alternative tax regimes for various types of assessees, as outlined in the table below. These regimes are not default options, so taxpayers wishing to opt for an alternative tax regime must file a specified form on or before the due date for filing an income tax return (ITR).

These forms can be filed online at the Income Tax e-Filing Portal by navigating to: e-file > Income Tax forms > file Income Tax Forms.