Old or new tax regime: Which is better for standard deduction in FY 2024-25? Understand tax benefits, slab rates & deductions to make an informed decision. Read our expert comparison and use HR Calcy's Tax Calculators to maximize savings!
Taxation in India is an essential part of financial planning for individuals and businesses. The government collects taxes to fund public services, infrastructure, and social welfare programs. For salaried employees and pensioners, income tax is a significant financial obligation, and optimizing tax savings is crucial.
One of the key benefits available to taxpayers is the standard deduction, which helps reduce taxable income without requiring any specific expenses or documentation. Introduced in Budget 2018, this deduction replaced transport and medical allowances, simplifying the tax structure while providing relief to salaried individuals and pensioners.
For the Financial Year (FY) 2024-25, taxpayers can opt for either the old tax regime or the new tax regime. While both offer a ₹50,000 standard deduction, their overall tax implications differ due to variations in tax slabs, deductions, and exemptions. Choosing the right tax regime can significantly impact net savings, making it crucial to understand which one offers a better advantage.
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- Is ₹50,000 Standard Deduction Still Available in the New Tax Regime (2024-25)?
This article provides a detailed comparison between the old and new tax regimes, focusing on the standard deduction, tax liability, and key factors influencing the best choice for taxpayers in FY 2024-25.
Understanding Standard Deduction in the Old and New Tax Regimes
What is Standard Deduction?
The standard deduction is a flat deduction allowed from taxable salary income, reducing the total taxable amount without the need for any supporting bills or proof of expenses. It was introduced in Budget 2018 as a replacement for transport and medical allowances.
Purpose of Standard Deduction:
- Helps salaried employees and pensioners lower their taxable income.
- Simplifies the tax calculation process by eliminating the need for multiple small deductions.
- Provides tax relief uniformly across income levels.
For FY 2024-25, the standard deduction remains unchanged at ₹50,000 under both the old and new tax regimes. However, the impact of this deduction varies depending on the chosen tax regime.
Standard Deduction in the Old Tax Regime
How It Applies to Salaried Employees and Pensioners
Under the old tax regime, the standard deduction of ₹50,000 is available to both:
- Salaried individuals receiving income from employment.
- Pensioners receiving income from their former employer.
This deduction is subtracted from gross salary or pension income, reducing the taxable amount and lowering the overall tax liability.
Standard Deduction for FY 2024-25 (₹50,000)
For FY 2024-25, salaried individuals and pensioners can claim a flat ₹50,000 standard deduction without any conditions or documentation.
Other Deductions and Exemptions Available in the Old Regime
In addition to the standard deduction, the old tax regime allows taxpayers to claim various other deductions and exemptions, including:
- House Rent Allowance (HRA) exemption – for employees paying rent.
- Deductions under Section 80C – up to ₹1.5 lakh for investments like PPF, EPF, LIC, ELSS, etc.
- Deductions under Section 80D – for health insurance premiums.
- Deductions on home loan interest (Section 24) – up to ₹2 lakh for self-occupied property.
These additional deductions make the old tax regime attractive for individuals with multiple eligible expenses.
Standard Deduction in the New Tax Regime
Standard Deduction for FY 2024-25 (₹50,000)
The new tax regime, introduced in Budget 2020, initially did not provide any standard deduction. However, Budget 2023 extended the ₹50,000 standard deduction to taxpayers choosing the new regime, making it more beneficial for salaried individuals.
Changes Introduced in the 2023 Union Budget
- The new tax regime became the default tax system for taxpayers unless they specifically opt for the old regime.
- The standard deduction of ₹50,000 was introduced for the new tax regime for the first time.
- Revised tax slabs were introduced, lowering the tax rates compared to the old regime.
Limited Deductions and Exemptions Compared to the Old Regime
Unlike the old tax regime, the new tax regime does not allow many other deductions and exemptions, including:
- No HRA exemption for rented accommodation.
- No Section 80C benefits (PPF, EPF, LIC, ELSS, etc.).
- No home loan interest deduction under Section 24.
Although the standard deduction is available in both regimes, the absence of additional deductions in the new tax regime means taxpayers must carefully evaluate which system offers better tax savings.
Key Differences Between the Old and New Tax Regimes
Choosing between the old tax regime and the new tax regime requires an understanding of how each system impacts tax liability. While both offer a ₹50,000 standard deduction, other factors—such as tax slabs, exemptions, and deductions—significantly influence the final tax payable.
Comparison Table: Standard Deduction & Other Tax Benefits
The table below highlights the key differences between the two tax regimes:
| Feature | Old Tax Regime | New Tax Regime (FY 2024-25) |
|---|---|---|
| Standard Deduction | ₹50,000 | ₹50,000 |
| Tax Slabs | Higher tax rates with more slabs | Lower tax rates with revised slabs |
| Deductions under Section 80C | Available (₹1.5 lakh) | Not Available |
| HRA (House Rent Allowance) | Available | Not Available |
| Home Loan Interest Deduction | Available (₹2 lakh under Section 24) | Not Available |
| Medical Insurance (80D) | Available | Not Available |
| Education Loan Interest (80E) | Available | Not Available |
| EPF, PPF, ELSS, NPS Benefits | Available under Section 80C/80CCD | Not Available |
| Who Should Prefer? | Taxpayers with multiple deductions | Individuals seeking a simpler, lower-tax system |
Impact of Slab Rates on Taxable Income
One of the biggest differences between the two regimes is the income tax slab structure:
Old Tax Regime (FY 2024-25)
Higher tax rates but allows multiple deductions and exemptions:
| Income Slab (₹) | Tax Rate |
|---|---|
| 0 - 2,50,000 | Nil |
| 2,50,001 - 5,00,000 | 5% |
| 5,00,001 - 10,00,000 | 20% |
| Above 10,00,000 | 30% |
New Tax Regime (FY 2024-25)
Lower tax rates but fewer deductions:
| Income Slab (₹) | Tax Rate |
|---|---|
| 0 - 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% |
| Above 15,00,000 | 30% |
- Lower tax rates in the new regime make it appealing for those who do not claim multiple deductions.
- The old regime is better for those using exemptions like HRA, 80C, and home loan benefits.
Eligibility & Applicability for Salaried Individuals and Pensioners
Old Tax Regime Eligibility
- Available to all salaried employees and pensioners.
- Allows them to claim ₹50,000 standard deduction + additional deductions.
- Suitable for those with higher tax-saving investments.
New Tax Regime Eligibility
- Available to all salaried individuals and pensioners by default (can opt out).
- Offers ₹50,000 standard deduction but no additional deductions.
- Beneficial for taxpayers with minimal investments or deductions.
Understanding these key differences helps taxpayers choose the most beneficial tax regime based on their income, deductions, and financial goals.
Tax Calculation Example: Old vs. New Tax Regime (FY 2024-25)
To better understand how the old and new tax regimes impact taxable income and tax liability, let’s analyze tax calculations with different salary breakups.
Salary Breakup with and Without Standard Deduction
Assume an individual earns a gross annual salary of ₹10,00,000. The tax calculation will be as follows under both regimes.
Old Tax Regime (With Standard Deduction & Deductions)
| Salary Component | Amount (₹) |
|---|---|
| Gross Salary | 10,00,000 |
| (-) Standard Deduction | 50,000 |
| (-) Section 80C (PPF, EPF, ELSS, etc.) | 1,50,000 |
| (-) Home Loan Interest (Sec 24b) | 2,00,000 |
| (-) Health Insurance Premium (Sec 80D) | 25,000 |
| Taxable Income | 6,75,000 |
New Tax Regime (Only Standard Deduction, No Other Deductions)
| Salary Component | Amount (₹) |
|---|---|
| Gross Salary | 10,00,000 |
| (-) Standard Deduction | 50,000 |
| Taxable Income | 9,50,000 |
Clearly, the taxable income is lower in the old regime due to multiple deductions, making it beneficial for taxpayers with investments and exemptions.
Tax Liability Comparison Under Both Regimes
Case 1: Annual Salary ₹10,00,000
| Particulars | Old Tax Regime (₹) | New Tax Regime (₹) |
|---|---|---|
| Taxable Income | 6,75,000 | 9,50,000 |
| Tax on ₹2,50,001 – ₹5,00,000 | 12,500 | 12,500 |
| Tax on ₹5,00,001 – ₹7,50,000 | 35,000 | 25,000 |
| Tax on ₹7,50,001 – ₹10,00,000 | 50,000 | 50,000 |
| Total Tax (Before Rebate) | 97,500 | 87,500 |
| (-) Rebate (if applicable) | Nil | Nil |
| Total Tax Payable | 97,500 | 87,500 |
- New tax regime is beneficial if no additional deductions are claimed.
- Old tax regime results in lower tax if multiple deductions are utilized.
Best Tax Regime Selection Based on Different Income Levels
To help taxpayers choose the right regime, let’s compare tax liability across different salary levels.
| Annual Salary (₹) | Old Tax Regime Tax (₹) | New Tax Regime Tax (₹) | Best Regime |
|---|---|---|---|
| 5,00,000 | 0 (after rebate) | 0 (after rebate) | Both Equal |
| 7,00,000 | 0 (after rebate u/s 87A) | 0 (after rebate u/s 87A) | Both Equal |
| 10,00,000 | 97,500 | 87,500 | New Regime (If no deductions) |
| 12,00,000 | 1,42,500 | 1,35,000 | New Regime (For non-investors) |
| 15,00,000 | 2,32,500 | 1,87,500 | New Regime (If no deductions) |
| 20,00,000 | 4,29,000 | 3,75,000 | New Regime (Without deductions) |
Key Insights:
- The old tax regime is better for those utilizing multiple deductions (80C, HRA, 80D, etc.).
- The new tax regime is simpler and preferable for taxpayers without deductions.
- Taxpayers earning below ₹7,00,000 can benefit from Section 87A rebate under both regimes.
By analyzing income, deductions, and tax liability, taxpayers can make an informed decision on selecting the most beneficial tax regime for FY 2024-25.
Factors to Consider While Choosing the Best Tax Regime
Selecting the right tax regime for FY 2024-25 is crucial for optimizing tax savings. While both the old and new tax regimes offer a standard deduction of ₹50,000, the overall tax liability varies based on individual financial profiles. Here are the key factors to consider before making a decision:
1. Income Level and Salary Structure
Your total annual income and the composition of your salary components (such as HRA, LTA, and allowances) play a crucial role in determining which regime is more beneficial.
Best for High-Income Earners (₹15,00,000 and above):
- The new tax regime has lower tax rates and is simpler.
- However, if you invest heavily in tax-saving options, the old tax regime may be more beneficial.
Best for Mid-Income Earners (₹7,00,000 – ₹15,00,000):
- If you claim deductions like 80C, 80D, HRA, etc., the old regime is better.
- If you have minimal tax-saving investments, the new regime may reduce compliance burden.
Best for Low-Income Earners (₹7,00,000 or below):
- Both regimes offer full tax exemption due to the Section 87A rebate.
- The new tax regime is simpler and avoids unnecessary tax-saving investments.
2. Eligibility for Additional Deductions and Exemptions
The old tax regime allows taxpayers to claim multiple exemptions and deductions, whereas the new tax regime has minimal deductions beyond the ₹50,000 standard deduction.
| Common Deductions & Exemptions | Old Tax Regime | New Tax Regime |
|---|---|---|
| Standard Deduction (₹50,000) | Available | Available |
| Section 80C (PPF, EPF, LIC, etc.) | Available (₹1,50,000) | Not Allowed |
| Section 80D (Health Insurance Premium) | Available (₹25,000-₹50,000) | Not Allowed |
| HRA (House Rent Allowance) | Available | Not Allowed |
| LTA (Leave Travel Allowance) | Available | Not Allowed |
| Home Loan Interest (Section 24b) | Available (₹2,00,000) | Not Allowed |
| NPS (80CCD(1B)) | Available (₹50,000) | Not Allowed |
| Education Loan Interest (80E) | Available | Not Allowed |
| Section 87A Rebate | Available | Available |
Key Takeaway: If you claim multiple deductions, the old tax regime is better. If you don’t use many deductions, the new tax regime simplifies taxation.
3. Long-Term Tax-Saving Goals and Financial Planning
Your choice of tax regime should align with your long-term financial strategy.
- If you prefer structured tax planning (investing in EPF, PPF, ELSS, NPS, etc.), the old tax regime helps reduce taxable income significantly.
- If you want a hassle-free tax structure without mandatory investments, the new tax regime is more convenient.
Example:
- A young professional with no major financial commitments may find the new tax regime simpler.
- A family person with home loans, medical insurance, and children's education expenses may benefit more from the old tax regime.
4. Suitability for Salaried Employees vs. Pensioners
The impact of tax regimes varies for salaried individuals and pensioners:
For Salaried Employees:
- The old tax regime is preferable if claiming HRA, LTA, EPF, and deductions.
- The new tax regime is suitable for those who don’t want complex tax planning.
For Pensioners:
- Pensioners do not receive HRA or LTA, so their deductions are limited.
- If they have investments under 80C and medical expenses (80D), the old regime is better.
- If they have no major deductions, the new tax regime offers lower tax rates.
Final Thought: Which Tax Regime Should You Choose?
- If you claim deductions and exemptions, the old tax regime is more beneficial.
- If you prefer a straightforward tax structure, the new tax regime simplifies compliance.
- Taxpayers earning ₹7,00,000 or below pay zero tax in both regimes due to the rebate.
By analyzing your income, deductions, and long-term financial goals, you can select the most tax-efficient regime for FY 2024-25.
Conclusion
Choosing between the old and new tax regimes for FY 2024-25 depends on your income structure, eligibility for deductions, and financial goals. Here’s a quick recap of the key insights:
- Standard deduction of ₹50,000 is available in both regimes.
- The old tax regime allows multiple deductions and exemptions (like 80C, 80D, HRA, and home loan interest), making it beneficial for tax-saving investors.
- The new tax regime offers lower tax rates and a simpler filing process but lacks major exemptions and deductions.
Which Tax Regime is Better?
Choose the Old Tax Regime if:
- You have significant tax-saving investments (PPF, EPF, NPS, etc.).
- You claim HRA, 80C, 80D, and other deductions.
- You prefer structured financial planning and long-term savings.
Choose the New Tax Regime if:
- You have minimal deductions and prefer a hassle-free tax process.
- Your income is below ₹7,00,000, as you get a zero-tax benefit under Section 87A.
- You prefer higher in-hand salary rather than tax-saving investments.
Make an Informed Decision with HR Calcy’s Tax Calculators
To simplify your tax planning, use HR Calcy’s Tax Calculators.
Our free tools help you:
- Compare tax liability under both regimes instantly.
- Calculate salary breakup and in-hand salary.
- Optimize your tax-saving strategy efficiently.
Make the smart choice and maximize your tax savings today!
FAQ
What is the standard deduction for FY 2024-25 in the old tax regime?
The standard deduction for FY 2024-25 in the old tax regime is ₹50,000 for salaried individuals and pensioners.
Is the ₹50,000 standard deduction available in the new tax regime?
Yes, from FY 2023-24 onwards, the new tax regime also provides a ₹50,000 standard deduction for salaried employees and pensioners.
Which tax regime is better for salaried employees?
If you claim deductions like 80C, HRA, and home loan interest, the old tax regime is better. If you prefer lower tax rates and a simple filing process, the new tax regime is preferable.
What is the key difference between the old and new tax regimes?
The old tax regime allows multiple deductions and exemptions, while the new tax regime offers lower tax rates but fewer deductions.
How can I calculate my tax liability under both regimes?
Use **[HR Calcy’s Tax Calculators](https://www.hrcalcy.in/)** to compare tax liability under the old and new tax regimes instantly.
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