Comparing Tax Outgo on ₹10L Salary Under Both Regimes
- PRITI SIRDESHMUKH
- Sep 19
- 8 min read
Updated: Sep 29
Understanding the Indian income tax system is crucial for salaried individuals and professionals aiming to optimize their tax liability. India offers two tax regimes—the old tax regime and the new tax regime—each with its own set of rules, deductions, and exemptions. While the old regime allows taxpayers to claim a variety of deductions and exemptions, the new regime offers lower tax rates but fewer deductions. Choosing the right regime can make a significant difference in annual tax outgo. Let us understand a detailed overview of tax regimes, current tax slabs, how deductions work under the old regime, the availability of benefits under the new regime, and practical examples to help taxpayers make an informed choice. It also highlights how using platforms like the TaxBuddy mobile app can simplify tax filing and optimize tax payments for FY 2023-24.
Table of Contents
Overview of Tax Regimes in India
India offers two income tax regimes: the Old Tax Regime and the New Tax Regime. The old regime allows multiple deductions, exemptions, and rebates, such as those under Section 80C, HRA, and medical expenses. Taxpayers can reduce their taxable income by investing in eligible instruments and claiming deductions.
The new tax regime, introduced in 2020, provides lower tax rates but removes most exemptions and deductions. It is suitable for those who do not rely on tax-saving investments and prefer a simplified structure with minimal compliance.
Choosing the right regime depends on individual circumstances, income structure, and eligibility for deductions. Comparing tax liabilities under both regimes helps identify the most beneficial option.
Tax Slabs for Financial Year 2023-24
For FY 2023-24, the tax slabs under the old regime are progressive and depend on income levels:
Up to ₹2.5 lakh – Nil
₹2,50,001 to ₹5,00,000 – 5%
₹5,00,001 to ₹10,00,000 – 20%
Above ₹10,00,000 – 30%
The new regime offers lower tax rates but with no major deductions:
Up to ₹3 lakh – Nil
₹3,00,001 to ₹7,00,000 – 5%
₹7,00,001 to ₹10,00,000 – 10%
₹10,00,001 to ₹12,00,000 – 15%
₹12,00,001 to ₹15,00,000 – 20%
Above ₹15,00,000 – 30%
Understanding these slabs helps taxpayers estimate their tax liability accurately and plan investments accordingly.
How Tax Benefits Work in the Old Tax Regime
The old tax regime allows taxpayers to reduce their taxable income by claiming a variety of deductions and exemptions. These provisions are designed to encourage savings, investments, insurance coverage, and social contributions while simultaneously lowering overall tax liability. Understanding these benefits is essential for effective tax planning.
Section 80C – Investments and Savings One of the most widely used deductions under the old regime is Section 80C. Taxpayers can claim a deduction of up to ₹1.5 lakh per financial year on eligible investments and expenses. This includes contributions to the Public Provident Fund (PPF), Equity Linked Savings Schemes (ELSS), life insurance premiums, and principal repayment of home loans. Carefully allocating funds across these instruments helps maximize tax savings while also supporting long-term financial goals.
House Rent Allowance (HRA) House Rent Allowance provides partial tax exemption on the rent paid, depending on the employee’s salary, the actual rent, and the city of residence. Proper documentation, such as rent receipts and rental agreements, is necessary to claim this benefit. HRA can significantly reduce taxable income for salaried individuals living in rented accommodations.
Section 80D – Health Insurance Premiums Premiums paid for health insurance for self, spouse, children, and parents are eligible for deduction under Section 80D. The deduction limit varies depending on the age of the insured and can go up to ₹1 lakh for senior citizens. This deduction encourages individuals to maintain health coverage while simultaneously reducing their taxable income.
Other Benefits Additional deductions include:
Section 80E: Interest paid on education loans for higher studies, which can be claimed without any upper limit.
Section 80G: Donations made to charitable institutions or funds, which qualify for partial or full deductions depending on the nature of the donation.
Section 80TTA: Interest earned on savings accounts up to ₹10,000 annually.
These deductions, when claimed strategically, reduce taxable income and lower the overall tax burden. Proper planning requires not only knowledge of eligible expenses and investments but also maintaining accurate records and receipts to substantiate claims during filing or in case of scrutiny.
In essence, the old tax regime rewards disciplined saving and investment habits, allowing taxpayers to combine financial planning with tax efficiency. By understanding each provision thoroughly, individuals can optimize their deductions and minimize liabilities effectively.
Is Any Deduction Allowed in New Tax Regime?
The new tax regime primarily focuses on lower tax rates, eliminating most exemptions and deductions. However, a few provisions remain:
NPS Employer Contribution – Up to ₹50,000 deduction underSection 80CCD(2).
Standard Deduction – Applicable for salaried individuals (₹50,000 for FY 2023-24).
EPF Contribution – Employee contributions to EPF are exempt under certain conditions.
For taxpayers without multiple investments or deductions, the new regime can simplify tax calculation and filing.
Tax Calculation Example for ₹10 Lakh Salary
Old Regime:
Gross Salary: ₹10,00,000
Deductions (80C + 80D + Standard Deduction): ₹2,00,000 + ₹50,000 + ₹50,000 = ₹3,00,000
Taxable Income: ₹7,00,000
Tax Payable: ₹12,500 (5% on ₹2,50,000) + ₹40,000 (20% on ₹2,00,000) = ₹52,500
Total Tax after rebate: ₹52,500
New Regime:
Gross Salary: ₹10,00,000
Standard Deduction: ₹50,000
Taxable Income: ₹9,50,000
Tax Payable: ₹15,000 (5% on ₹3,00,000) + ₹30,000 (10% on ₹3,00,000) + ₹67,500 (15% on ₹3,50,000) = ₹1,12,500
This example demonstrates how deductions in the old regime can result in lower tax liability for certain salary structures.
Factors to Consider When Choosing a Regime
Choosing between the old tax regime and the new tax regime is a crucial decision for every taxpayer, as it directly affects the total tax liability, available deductions, and overall financial planning. Several factors should be carefully evaluated to identify the regime that minimizes tax outgo while aligning with long-term financial goals.
Total Eligible Deductions and Exemptions One of the most important considerations is the total value of deductions and exemptions a taxpayer can claim. Under the old tax regime, taxpayers can avail themselves of multiple deductions such as Section 80C (investments in PPF, ELSS, life insurance), 80D (health insurance premiums), and exemptions like HRA and LTA. If these deductions and exemptions collectively result in significant tax savings, the old regime may be more beneficial.
Investments in Tax-Saving Instruments Tax-saving investments play a critical role in optimising taxable income. If a taxpayer has made or plans to make investments eligible for Section 80C, 80CCD, or other similar provisions, the old regime could yield higher tax benefits. Conversely, under the new regime, these benefits are not available, and tax computation is more straightforward.
Salary Composition and Allowances The structure of one’s salary can influence the choice of regime. Components such as HRA, LTA, and other allowances provide exemptions under the old regime, reducing taxable income. If allowances form a significant part of income, the old regime may be advantageous.
Long-Term Financial Goals and Retirement Planning Choosing a tax regime is not just about immediate savings; it affects long-term planning. The old regime incentivises disciplined investments and savings in retirement and insurance plans. For taxpayers aiming for structured financial planning, including retirement corpus accumulation, the old regime may complement their goals.
Simplicity of Filing and Compliance Requirements The new tax regime offers a simplified tax calculation with lower slab rates and no need to maintain extensive documentation for deductions. For individuals who prefer straightforward filing without managing multiple investment proofs, the new regime can reduce administrative burden and compliance hassles.
Comparing Estimated Tax Under Both Regimes Ultimately, comparing estimated tax liability under both regimes is essential. By calculating taxable income and applying respective slab rates, taxpayers can identify which regime minimises tax outgo. Tools and calculators available online, including TaxBuddy’s platform, can help simulate different scenarios, ensuring an informed and optimal choice.
Careful evaluation of these factors ensures taxpayers select a regime that balances immediate tax savings, long-term financial objectives, and filing convenience.
Using TaxBuddy App to Optimize Tax Outgo
The TaxBuddy mobile app allows taxpayers to calculate tax liability under both regimes, file ITR seamlessly, and track refunds efficiently. Using AI-driven tax filing, users can maximize benefits, avoid errors, and compare regimes instantly. This ensures a hassle-free experience and informed decision-making while filing returns.
Conclusion
Choosing between the old and new tax regimes depends on individual circumstances, eligible deductions, and salary structure. Taxpayers with multiple deductions may benefit more from the old regime, while those preferring simplicity may opt for the new regime. Using platforms like TaxBuddy helps evaluate options effectively. For anyone looking to streamline their tax filing and optimize tax liability, it is highly recommended todownload the TaxBuddy mobile app for a simplified, secure, and hassle-free experience.
FAQs
Q1. Can salaried individuals switch between old and new tax regimes every year?
Yes, taxpayers have the flexibility to choose between the old and new tax regimes each financial year. During ITR filing, the taxpayer selects the regime applicable for that particular year. The choice is based on personal tax planning, salary structure, and eligible deductions. Taxpayers can analyse which regime results in a lower tax liability before finalizing their option.
Q2. Are HRA exemptions available in the new tax regime?
No, under the new tax regime, House Rent Allowance (HRA) exemptions are not allowed. Taxpayers opting for the new regime must include their HRA as part of their taxable salary. This is a significant difference compared to the old regime, where HRA exemptions could reduce taxable income substantially.
Q3. Is Section 80C deduction available in the new tax regime?
Most deductions under Section 80C are not available under the new regime. However, certain contributions, such as employer contributions to the National Pension System (NPS) up to ₹50,000, are allowed. This change encourages taxpayers to weigh the benefits of each regime carefully.
Q4. Can professionals with business income opt for the new tax regime?
Yes, professionals who earn income from business or profession can also choose the new tax regime. This includes freelancers, consultants, and small business owners. The choice allows them to benefit from simplified compliance with fewer deductions and exemptions.
Q5. Does using the TaxBuddy app simplify tax filing?
Yes, the TaxBuddy mobile app makes tax filing seamless and user-friendly. It provides AI-driven tax calculations, automatically fills details from Form 16, tracks TDS and refunds, and ensures error-free filing. The platform also guides users on eligible deductions and the most beneficial tax regime.
Q6. Can taxpayers change their decision after filing under one regime?
No, once a taxpayer files the ITR under a chosen regime, the decision is fixed for that financial year. The regime selection cannot be altered after submission, so it’s important to analyze the tax implications carefully before filing.
Q7. Are standard deductions available in both regimes?
Yes, salaried individuals are eligible for standard deductions under both the old and new tax regimes. This ensures that basic employment-related exemptions are applied, helping reduce taxable income without additional calculations.
Q8. How does one compare tax liability under both regimes?
Tools like TaxBuddy simplify this comparison. They calculate tax under both old and new regimes instantly, factoring in salary components, eligible deductions, exemptions, and investments. Taxpayers can use these comparisons to select the regime that minimises their overall tax liability.
Q9. Does the new regime benefit high-income taxpayers?
The new regime may benefit high-income taxpayers if they do not have multiple deductions or exemptions to claim. It offers lower tax rates but fewer deductions, so individuals with minimal investments in tax-saving instruments may find it advantageous.
Q10. Is advance tax required under the new regime?
Yes, advance tax obligations remain unchanged under the new tax regime. Taxpayers with estimated tax liability exceeding ₹10,000 in a financial year must pay advance tax in installments, irrespective of the regime chosen.
Q11. Can NPS contributions reduce tax under the new regime?
Yes, employer contributions to NPS up to ₹50,000 are eligible for deduction underSection 80CCD(2) even in the new regime. This allows taxpayers to continue building retirement savings while reducing their taxable income.
Q12. Does switching to the new regime reduce compliance burden?
Yes, the new regime simplifies tax filing and compliance by removing many exemptions and deductions. With fewer calculations required, taxpayers spend less time on documentation and reporting, making it easier to file ITR accurately and on time.
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