Old tax regime Vs New tax regimeUnder the old tax regime, around 70 deductions and exemptions are available, including HRA and LTA.
Although, new tax regime is the default tax regime, taxpayers can choose the tax regime that they think is beneficial to them.
Also, they have option to choose new tax regime in one financial year and old tax regime in another year and vice versa.
Ever since the new tax regime became the default option, there have been speculations that the government might soon scrap the old regime.
In the distant future, it is certain that the old tax regime will phase out, but not before a significant percentage of people shift to the new regime.
Finance Minister Nirmala Sitharaman is expected to present the maiden budget of the Modi 3.0 government in the third week of July. The finance minister, who will be presenting her sixth straight full-fledged Union Budget next month, is expected to announce tax changes in the form of new deductions and exemptions within the new tax regime, according to experts, as they do not see the government revisiting tax slabs or introducing any new changes in the old tax regime.
In the Union Budget 2023, the Modi government made the new tax regime – applicable for persons other than companies and firms – the default option for taxpayers, showing that the Centre eventually wants more people to shift to the new regime, which was introduced in the Union Budget 2020.
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Old tax regime Vs New tax regime
Under the old tax regime, around 70 deductions and exemptions are available, including HRA and LTA. These deductions and exemptions reduce taxable income of taxpayers significantly.
Under the new tax regime, the tax rates are significantly lower, though the benefit of various exemptions and deductions (other than standard deduction of Rs 50,000 from salary and Rs 15,000 from family pension) is not available, as in the old regime.
Although, new tax regime is the default tax regime, taxpayers can choose the tax regime that they think is beneficial to them. The option for opting out from the new tax regime is available till filing of return for the AY 2024-25.
Eligible persons without any business income can choose the new regime for each financial year. Also, they have option to choose new tax regime in one financial year and old tax regime in another year and vice versa.
Will the government scrap old tax regime in 2024 budget?
Ever since the new tax regime became the default option, there have been speculations that the government might soon scrap the old regime. In the distant future, it is certain that the old tax regime will phase out, but not before a significant percentage of people shift to the new regime.
Sujit Bangar, Founder of Taxbuddy.com, said, “Two regimes are certainly creating confusion in the minds of return-filing taxpayers. It would be better if we have a single tax rates regime instead of two.”
Experts foresee a scenario where, once 70 to 80% of taxpayers opt for the new tax regime, the government might consider phasing out the old regime completely. Through various tax reform measures, the government has shown its main aim is to streamline tax administration and encourage widespread adoption of the new tax framework.
Taxpayers’ expectations
In the interim budget, presented in February this year ahead of the Lok Sabha polls, Sitharaman did not announce any changes either in the tax rates or slabs, but now, expectations are high that she will provide some relief to taxpayers, especially to salaried and middle-class.
