As the financial year 2024 inches closer to its Form 12BB deadline, a new assessment year is about to begin with a new tax regime as the default option. Some taxpayers are confused about which regime to choose with this tax overhaul. Taxpayers can get help in this decision-making process from the Income Tax Department's Income Tax Calculator AY 2024-25 which has unveiled a user-friendly tax comparison interface, where one can enter income details for the Financial Year 2023-24. The online tool accessible here, quickly compares tax liabilities between the old and new regimes, shedding light on potential tax savings if taken the best route.
Income Tax Calculator AY 2024-25 prompts individuals to enter details such as gender, residential status, gross salary, additional income sources, interest on self-occupied property, and eligible deductions. Notably, it asks for deductions/exemptions not applicable in the new tax regime and thus facilitates a comparison.
For instance, a taxpayer with a gross salary of Rs 20,00,000, who can claim Rs 2,00,000 in exemptions not allowed in the new regime, will see a huge difference in tax liabilities. Interest on home loans for Self Occupied House Property is also demanded and here we suppose it to be Rs 30,000.
Income Tax Calculator AY 2024-25 asks about all exemptions you have but are not allowed in the new tax regime, and the calculator itself gives a list of such exemptions. These include home loan benefits, savings account interest exemptions, health insurance premium deductions and huge deductions for repayment of education loans. Note that travel concessions, HRA, and specific allowances are non-deductible in the new regime. For instance, if such deductions allowed under the old tax regime amount to only Rs 50,000, let's see how the calculation turns out.
Under the old regime, the total income of Rs 17,20,000 after deductions might have incurred a total tax liability of Rs 3,41,640. But the new regime, with a higher gross total income of Rs 19,50,000, after standard deduction resulted in only a tax liability of Rs 2,96,400. The transition to the new regime yielded total tax savings of Rs 45,240 for the taxpayer.
Remember that starting from the financial year 2023-24, the new tax regime becomes the default option, so one has to specifically opt for the old tax regime if deductions are in his or her favour. Under the new regime, one can only get National Pension System (NPS) tax benefits, allowing up to Rs 2 lakh in savings, deductions on home loans, where the property has been rented out and deductions for family pensioners who can claim a deduction of either Rs 15,000 or 33 per cent of their pension, whichever is lower.
Simply put, generally for individuals earning less than Rs 15 lakhs, the new tax regime is advantageous. But specifically, it becomes particularly favourable when total deductions remain below Rs 1.5 lakhs.
Contrary to this, the old regime becomes more beneficial when total deductions exceed Rs 3.5 lakhs. Additionally, income size plays a major role, as slab rates are applicable accordingly. Individuals with no housing or education loans and staying in their own houses might find the new tax regime more attractive.