More and more taxpayers are switching to the new tax regime, especially salaried individuals.
This is mainly because the new system offers lower tax rates, making it more attractive.
For the financial year 2024–25, the maximum tax rate is 30%, but it only applies to incomes above ₹15 lakh.
Those earning between ₹12 lakh and ₹15 lakh will be taxed at 20%, while those earning between ₹10 lakh and ₹12 lakh will pay 15% tax.
What the Government Said
While announcing these changes on July 23, 2024, Finance Minister Nirmala Sitharaman stated that salaried employees could save up to ₹17,500 in taxes under the new system.
In comparison, the old regime applies a 30% tax rate on incomes above just ₹10 lakh, which increases the tax burden faster.
According to the Chairman of the Central Board of Direct Taxes (CBDT), about 73% of taxpayers have already adopted the new tax regime. This number is expected to rise to 90% by next year.
Higher Standard Deduction
One of the major benefits for salaried individuals in the new tax regime is the increased standard deduction, which was raised from ₹50,000 to ₹75,000.
In the old regime, the deduction still remains at ₹50,000.
Deductions Available Under New Regime
While the new tax regime removes many traditional deductions like those under Sections 80C, 80D, 80DD, and 80G, some important deductions still apply, including:
Under Section 80CCD(2), employers’ contributions to NPS (National Pension System) are deductible up to 14%.
Contributions to the Agniveer Corpus Fund are deductible under Section 80CCH.
Employers hiring new employees can claim a 30% deduction for three years under Section 80JJAA.
What Taxpayers Should Remember
If you usually claim tax deductions under Sections 80C, 80D, 80DD, or 80G, remember that these are not allowed in the new tax system.
These are only available under the old tax regime. So, before choosing between the two, assess which system works best for your financial situation.
Use an Income Tax Calculator
If you make investments to save on taxes but are unsure about which tax regime to choose, you can use an income tax calculator.
Just enter your income and investment details, and it will help you compare tax liability under both systems. Choose the regime where you pay less tax.
