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In Budget 2020, the Indian government unveiled a new income tax structure that would be available to citizens starting in FY2021. Its adoption, however, stayed modest. Finance Minister Nirmala Sitharaman revealed a significant change to the new tax structure in the Union Budget 2023 to promote greater adoption. These modifications will take effect for the fiscal year (FY) 2023–2024, also known as the evaluation year (AY) 2024–2025, which runs from April 2023 to March 2024.

In actuality, the new tax regime has been chosen as the default choice for all taxpayers beginning in FY24, and taxpayers who wish to choose the old tax regime must now express this preference in writing.

What exactly is the new tax system, what changes have been made to it, and how does it compare to the prior system now?

Which one should you choose now that the government has attempted to level the playing field between the previous tax regime and the new tax regime? What you should know is as follows.

**No tax up to Rs. 500,000 taxable income, as Rebate under section 87A is available
*In the existing tax regime the basic exemption income slab in case of a resident individual who is 60 years

Deductions and Exemptions Under Old Tax Regime

Public Provident FundHouse Rent Allowance
Equity Linked Savings Scheme (ELSS)Leave Travel Allowance
Employee Provident FundMobile and Internet Reimbursement
Life Insurance PremiumFood Coupons or Vouchers
Principal and Interest component of Home LoanCompany Leased Car
Children Tuition FeesStandard Deduction
Health Insurance PremiumsUniform Allowance
Investment in NPSLeave Encashment
Tuition fee for Children 

The pros of the old regime:

• The old income tax system encouraged saving by requiring investments in specific tax-saving vehicles over time, which helped people save for a variety of upcoming expenses like marriage, education, home purchases, medical expenses, etc.
• In March 2019, India’s gross savings rate was around 30%, with domestic savings by people playing a sizable role in the country’s overall savings rate.

The cons of the old regime:

• Investments in certain instruments are eligible for tax benefits under the previous tax system, and most instruments have a set lock-in period of three to five years. Millennials, who would rather spend than save, and seniors, who would rather have cash on hand and invest in securities with a flexible and open-ended tenure, may not find this to be an appropriate tax-saving option.

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