Budget 2024 - Old vs. New tax: Which is more beneficial?

Nirmala Sitharaman, the union finance minister, introduced the Budget 2024–25 in parliament on Tuesday. She made statements that will provide better benefits to those who choose the new tax structure. In the long run, though, individuals with higher earnings and larger tax deductions might find the incentives provided by the previous tax system more alluring. nirmala sitharaman liberalized income tax slabs and increased the standard deduction from ₹50,000 to ₹75,000 under the new, simplified tax system. people with salaries would be better suited moving to the new tax system in light of the recent adjustments, notwithstanding the government's insistence.

Nonetheless, the previous tax system makes far more sense if one is qualified for a sizable house rent allowance (HRA) or is claiming deductions of up to ₹2 lakh on home loan interest. 

Older tax law is preferable for larger deductions.

For example, under the previous tax system, a salaried employee's outgo would have been lower if they claimed deductions totaling more than ₹3,93,750 and had an income of ₹11 lakh. Even while it is occasionally improbable for a person earning ₹11 lakh to be able to claim such a high level of deduction, a couple with two incomes can. For an individual earning approximately ₹60 lakh, the previous system would be more appropriate if they were to claim deductions exceeding ₹3,93,750. On the other hand, the new and simplified tax structure will be significantly more advantageous for those with incomes up to about ₹7.75 lakh. Individuals earning more than ₹10 lakh would benefit more from the previous tax regime because it allows for greater deduction flexibility, which increases savings for those with higher incomes.

A new tax system for paid workers with modest incomes

The finance minister adjusted tax slabs for taxpayers who want to pay under the new income tax regime, raising the standard deduction for middle-class individuals by 50% to ₹75,000—a flat deduction from an employee's entire annual wage before determining the applicable income tax rate. The new tax system can eliminate taxes for anyone making less than ₹7 lakh. Under the new tax regime, a salaried employee earning up to ₹7.75 lakh will not be required to pay any taxes at all because of the higher ₹75,000 deduction.

Those with much greater incomes, say ₹6 crore, will benefit more from the new, streamlined tax system. Since the surcharge rate is lower than it was under the previous regime—39 percent—less tax will be due on this income. In conclusion, individuals with more deductions and relatively high incomes are predicted to support the old tax system, whereas individuals with incomes up to ₹7 lakh and beyond ₹5–6 crore are predicted to support the simplified system.