Old Or New Regime Of Income Tax
After the budget 2023, there comes excitement in the mind of individuals to opt old regime or the new regime. To understand the same, one has to refer to the maximum deduction they can claim in the old tax regime so that income tax payable in both regimes can be calculated and with this one can come to a conclusion that he should opt for the new or old tax regime.
In the Budget 2020, an option was given to the taxpayers to continue with the old tax regime where they can claim tax exemptions or opt for a new tax regime with no tax exemption but low tax rates. The limit on which no tax is required to be paid was Rs. 5 Lakhs which is now changed. This tax-free limit has been increased to Rs. 7 Lakhs which means if you choose the new tax regime and have income up to Rs. 7 Lakhs you will not be required to pay any taxes.
It has also been said that the new regime shall be the default regime which means if you opt for nothing then tax calculations shall be as per the new regime. This is a major change as the currently old regime is the default regime. This also means that the intention of the government is that in the future new tax regime will stay i.e without exemptions.
In the new tax regime, slabs have also been changed as the existing slab was Rs. 2.5 lakhs which are now revised to Rs. 3 Lacs. The tax impact is now lowered for those who are not taking benefit of all the deductions currently.
Standard deduction which was earlier available in the case of the old regime only will now be availed by taxpayers opting for new tax regimes which is surely better news for those thinking to opt for new tax regimes.
There has been a change in slab rates too, let’s understand the slab rates as below:
|Upto Rs. 2.5 Lacs||0%|
|From Rs. 2.5 Lacs to Rs. 5 Lacs||5%|
|From Rs. 5 Lacs to Rs. 10 Lacs||10%|
|Above Rs. 10 Lacs||30%|
|Upto Rs. 3 Lacs||Exempt|
|From Rs. 3 Lacs to Rs. 6 Lacs||5%|
|From Rs. 6 Lacs to Rs. 9 Lacs||10%|
|From Rs. 9 Lacs to Rs. 12 Lacs||15%|
|From Rs. 12 Lacs to Rs. 15 Lacs||20%|
|Above Rs. 15 Lacs||30%|
As can be seen above, rates in the old regime are the same, and changes have been made in the new tax regime only
For Example: If as an individual you have an income of Rs. 13,00,000 with no deductions or exemptions then tax liability as per the old and new regimes shall be:
|OLD REGIME||NEW REGIME
NEW REGIME (BUDGET 2023)(FY 2023-24)
|Less: Standard Deduction||50,000.00||–||50,000.00|
|Income Tax (including education cess)||1,95,000.00#||1,43,000.00||1,04,000.00|
#this amount is calculated without considering any kind of deductions, for a clear understanding
As per the above taxpayer saves more tax under the new tax regime but it must be understood that this is without any deductions and the situation may vary from person to person. Due to huge investments and savings, the old tax regime may be more tax efficient in the case of some taxpayers.
As a salaried person, you have the option to exercise this option every financial year. Henceforth, both tax regimes are optional for taxpayers, and before deciding on any one regime tax liability under both cases must be evaluated.
For more clarifications and guidance on which tax regime is best as per your income, feel free to contact us at email@example.com