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With a view to simplify the complex maze of plethora of deduction claims of the individuals and HUF taxpayers, the Government of India introduced the New Personal Tax/ Alternative Tax Regime, w.e.f. FY 2020-21 and onwards with reduced tax rates under a new section 115BAC of the Income Tax Act.

The compulsory requirement of foregoing of the majority of the available specified deductions by the individuals and HUFs opting for the new personal tax regime viz. deductions u/s 80C, 80D, 80E, 80G, 80QQB, 80TTA, 80TTB, 80CCD(1)/(1B), HRA u/s 10(13A), interest on housing loan in respect of self-occupied property u/s 24(b), made the said new regime unpopular and with a very few takers.

In order to make the new regime more appealing to the taxpayers, some significant amendments in the new personal tax regime u/s 115BAC, have been introduced in the Finance Act 2023.

The new personal tax regime has been sweetened, w.e.f. FY 2023-24 and onwards, with the reduced tax slab rates, increase in the basic exemption limit from Rs. 2.5. lakhs to Rs. 3 lakhs, increase in the threshold income limit of rebate from the existing Rs. 5 lakhs to Rs. 7 lakhs u/s 87A, availability of standard deduction of Rs. 75,000/- u/s 16(ia), availability of deduction u/s 80CCD(2) in respect of employer’s contribution to NPS upto 14% of salary and the reduction in surcharge rate from 37% to 25% for HNI's having annual income exceeding Rs. 5 crores.

Uptill FY 2022-23 (AY 2023-24), the Old Personal Tax Regime was the Default Regime and the taxpayers opting for the New regime and having their income under the head ‘Profits from Business or Profession’ were required to file an electronic declaration in prescribed Form 10IE, before the due date of filing of their ITRs u/s 139(1) of the Income Tax Act.

W.e.f. FY 2023-24 (AY 2024-25), the New Personal Tax Regime u/s 115BAC(1A), has become the Default Regime. Persons having their income under the head ‘Profits from Business or Profession’ and wanting to benefit from the specified deductions available only under the Old regime, are now required to exercise their option of filing their ITRs under the Old Regime by filing an electronic declaration in the prescribed form 10IEA, u/s 115BAC(6), before the due date of filing of their ITRs u/s 139(1) of the Income Tax Act.

Such persons shall be able to exercise the option of opting back to the new regime u/s 115BAC(1A) only once.

Persons not having income from business or profession shall be able to exercise the option of furnishing their ITRs as per the Old regime, in each year, simply by selecting the option of old regime in their ITR Forms.

Break-Even Point Analysis to Make an Informed Choice between the Old & the New Personal Tax Regime

In order to make an informed choice between the Old and the New Personal tax regime, as per the Break-Even Point analysis, the exact amount of specified deductions which are required to be claimed by the individual and HUF taxpayers in the old regime, at different levels of income, to break-even with the reduced tax liability in the new personal tax regime, have been worked out, and the same are tabulated below:

Table 1 Break Even Point Analysis for Salaried Class & Non Salaried Class

[Updated as per the Finance (No. 2) Act, 2024

As per the above in-depth 'break-even point analysis' in Table 1, the tax liability in both the regimes, old and new, remains same, at the break-even point of deductions worked out in column nos. 2 & 3 of above Table.

If the amount of deductions, available with the salaried class, professionals and proprietor businessmen, at their respective income levels, exceed the break-even point of deductions, as per columns 2 & 3 of the above Table, then the old regime becomes more beneficial than the new regime, in terms of reduced tax liability.

But, if such available deductions are equal to or less than the break-even point of deductions, as per columns 2 & 3 of the above Table, or if the taxpayers don't want to block their disposable funds in making such investments, then they should definitely switch to the new regime, in order to optimise their respective tax outflows.