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Budget 2023: New Tax Regime Vs Old Tax Regime: Which one should you choose?
Budget 2023: New Tax Regime Vs Old Tax Regime: Which one should you choose?
Finance Minister Nirmala Sitharaman announced a slew of proposals on the personal tax front, but many of these were aimed at making the new personal income tax regime more attractive for taxpayers.
The move is aimed at pushing more taxpayers towards the new tax regime in a way that eventually becomes a win-win for both the citizen and the government. The former does not have to worry about declaring exemptions and furnishing proofs; the government does not have to worry about tracking of these.
Towards that end, Finance Minister Nirmala Sitharaman announced that under the new tax regime, there will effectively be no income tax for anyone with an annual income of up to Rs 7 lakh in FY24. This was upped from Rs 5 lakh in the current fiscal.
There was also a change in the new regime tax slabs for those with an annual income of more than Rs 7 lakh – the following tax slabs will now apply for such individuals.
|
On Income |
Rate |
|
Up to 3,00,000 |
Nil |
|
From 3,00,001 to 6,00,000 |
5% |
|
From 6,00,001 to 9,00,000 |
10% |
|
From 9,00,001 to 12,00,000 |
15% |
|
From 12,00,001 to 15,00,000 |
20% |
|
Above 15,00,000 |
30% |
The above slabs mean the Finance Minister also reduced the number of slabs to five.
Moreover, under the new tax regime, the benefit of standard deduction has been extended to the salaried class and the pensioners including family pensioners. The finance minister proposed that salaried individuals will now get a standard deduction of Rs 50,000 and pensioners Rs 15,000 as per the proposal.
However, no new changes were proposed in the old tax regime in the Union Budget 2023.
Among other tax related announcements, the surcharge rate for individuals with income above Rs 2 crore (also called the super rich tax) has been reduced from 37% from 25% in the new tax regime.
Let us now compare an individual’s tax liability as per both, the old and the new regime.
Under the old tax regime, the tax slabs were and continue to remain as below:
|
Total Income |
Rate |
|
Up to Rs 2,50,000 |
0% |
|
Rs 2,50,000 to Rs 5,00,000 |
5% |
|
Rs 5,00,000 to Rs 10,00,000 |
20% |
|
Above Rs 10 lakh |
30% |
Here’s a calculation of the tax liability of individuals earning an income of Rs 7 lakh, Rs 10 lakh and Rs 15 lakh under the old and the new regimes for the coming fiscal year:
|
Particulars |
Rs 7 lakh |
Rs 10 lakh |
Rs 15 lakh |
|||
|
|
Old Regime |
New Regime (Revised) |
Old Regime |
New Regime (Revised) |
Old Regime |
New Regime (Revised) |
|
Gross Income |
7,00,000 |
7,00,000 |
10,00,000 |
10,00,000 |
15,00,000 |
15,00,000 |
|
Standard Deduction |
50,000 |
50,000 |
50,000 |
50,000 |
50,000 |
50,000 |
|
Deductions u/Sec 80C |
1,50,000 |
- |
1,50,000 |
- |
1,50,000 |
- |
|
Taxable Income |
5,00,000 |
6,50,000 |
8,00,000 |
9,50,000 |
13,00,000 |
14,50,000 |
|
Tax Payout |
Nil |
Nil |
72,500 |
52,500 |
2,02,500 |
1,40,000 |
In the above table, you can see the tax payable as per the changes in the tax slabs announced in Budget 2023.
Assuming a taxpayer just takes advantage of deductions under Section 80C, they will be better off with the new tax regime at each of the salary levels.
However, an individual may still be able to get a better deal in the old tax regime if they take advantage of most of the exemptions offered under the old tax regime.
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