What is the difference between the new and the old tax system?; Know everything from tax slabs to exemptions

Income Tax: After the end of the financial year, taxpayers will gradually start preparing to file the tax return. After thinking about which investment to save tax in the month of March, now the brainstorming will start on which tax method to use to pay tax. To such taxpayers, we are going to provide brief information about the new and old tax regime.

What exactly is the difference between the new tax system and the old tax system? What is the tax slab and how much is the benefit? Let’s try to understand this complexity from CA Ajay Bagadia, CA Santosh Mishra and Abhinandan Pandey…

According to CA Santosh Mishra, the new tax system has become the default system from the financial year 2023-24. So if you want to opt for the old tax method, you have to notify your company at the beginning of the financial year.

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Let’s take a look at the Income Tax Slabs for FY 2024-25…

Under the old tax system, there is no tax on income above 2.5 lakhs. Even if your income is less than Rs 5 lakh or Rs 4,99,999, you will pay zero tax. However, once you cross this limit, it will be calculated from Rs 2,50,001. That means you will have to pay 5% tax on income between Rs 2,50,001 to Rs 5,00,000. Income between Rs 5,00,001 and Rs 10 lakh will be taxed at 20 per cent and above Rs 10 lakh at 20 per cent.

Under the old tax system, individual taxpayers with total income above Rs 5 lakh get a tax credit of Rs 12,500 or direct tax payable, whichever is less.

Tax exemption is up to Rs 3 lakh for senior citizens aged 60 years and above, while the basic exemption limit is Rs 5 lakh for senior citizens aged 80 years and above.

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Income Tax Slabs in New Tax System

In the new tax regime, there is no tax on income up to Rs 3 lakh. Income above 3 lakhs and below 6 lakhs is taxed at 5%. The tax is 10 per cent for income above Rs 6 lakh and up to Rs 9 lakh and 15 per cent for income above Rs 9 lakh and up to Rs 12 lakh. Income above 12 lakhs and below 15 lakhs is taxed at 20%. 30% tax for income above 15 lakhs.

According to CA Ajay Bagadia, income up to Rs 7 lakh is exempt from tax in the new tax system. So, marginal relief is available to people with net taxable income above Rs 7 lakh.

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Discount, rebate, deduction

An important difference between the old and new income tax systems is that in the old system, major exemptions and deductions can be claimed under Section 80C, Section 80D, Section 80TTA. CA Abhinandan Pandey said that there is no such facility in the new tax system.

standard deduction

Standard deduction will remain ‘as is’ for the financial year 2024-2025. It will remain Rs 50,000 for both old and new tax regimes. In addition to the standard deduction, the new tax system provides for an additional deduction. CA Ajay Bagdia informed that it is received under section 80CCD(2) for contribution to NPS account.