Old vs New: Which Tax Regime Is Better For You? A lot of things became cheaper or costlier, but the limelight of the entire Union Budget 2023-24 was on 'Personal Income Tax'. With the proposed change, let's take a look as to which regime suits your pocket better
By Paromita Gupta •
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The nation tuned in yesterday to hear the last full budget of the current government before the 2024 elections. And I was obviously one of them. A common man or woman seeks to hope for just one thing from the annual announcements- that it makes their daily expenses cheaper. While a lot of things became cheaper or costlier, the limelight of the entire Union Budget 2023-24 was on 'Personal Income Tax'.
Finance Minister Nirmala Sitharaman made five major announcements while presenting the budget, two main being New Tax regime gaining default status and tax rebates being increased to INR 7 lakh under the alternate system.
For the uninitiated, the six tax slabs under the revised New Tax regime have been slashed to five and are as follows:
| Slabs (Rs) | Revised tax rates |
| Upto 3 lakh | NIL |
| 3- 6 lakh | 5% |
| 6-9 lakh | 10% |
| 9-12 lakh | 15% |
| 12- 15 lakh | 20% |
| 15 lakh and above | 30% |
Tax slabs and rates under the old tax regime and the previous new tax regime:
Slabs (Rs.) | Old Tax Regime | Previous New Tax Rates |
Upto 2.5 lakh | NIL | NIL |
2.5 to 5 lakh | 5% | 5% |
5 to 7.5 lakh | 20% | 10% |
7.5 to 10 lakh | 20% | 15% |
10 to 12.5 lakh | 30% | 20% |
12.5 to 15 lakh | 30% | 25% |
15 lakh and above | 30% | 30% |
While the taxpayers are rejoicing over the amendment, one cannot ignore that the new tax regime still lacks various deductions and exemptions available under the Old Tax Regime. Let's take a look at which tax regime is better suited to your annual CTC.
Related: Union Budget 2023: Major Boost to New Tax Regime; Tax Slabs Tweaked
In case you have an annual income upto INR 7.5 lakh
The revised new regime is an ideal option for the salaried population having an annual income of up to INR 7 lakh. But, considering the fact that Sitharaman heard the public's plea for a standard deduction and has now added it to the revised new regime, taxpayers with an income of up to INR 7.5 lakh will also be free of the tax burden. With an INR 50,000 standard deduction, one's taxable salary will come under the non-taxable slab.
For comparison, a taxpayer earning INR 7.5 lakh would have been paying INR 39,000 under the pre-budget new tax regime and INR 65,000 under old tax regime, if he doesn't make any investment or deduction but just takes relief u/s 87A. But with the recent amendments to the new tax regime, he will not have to pay any tax.
| Old tax regime | Pre-budget new tax | Revised new tax |
Income Tax after relief u/s 87A | 62,500 | 37,500 | 0 |
Health and Education Cess | 2500 | 1500 | 0 |
Total Tax Liability | 65,000 | 39,000 | 0 |
*Calculation didn't take into account any exemptions and deductions.
As per a PTI report, an anonymous ministry official shared that if one's exemptions are less than INR 3.57 lakh, new tax regime is more feasible. "So, a taxpayer who claims deductions less than ₹3.75 lakh while filing the annual I-T returns will be advised to opt for the new tax regime as declared in the Budget. They will stand to benefit by enjoying the reduced tax slab as stated in the Budget," the officer shared.
In case of annual income between INR 7.5 lakh to 15 lakh
If you fall under the income bracket of INR 7 lakh to 15 lakh and avail tax benefits such as 80C, 80D (medical insurance) and Section 24 (interest on house loan), then the old tax regime should be a preferred choice. And if no deductions and exemptions are applicable, then new tax regime is the better option.
For instance, on an annual income of INR 12.5 lakh, the following will be the applicable tax liabilities-
Old tax regime | Revised new tax | |
Income Tax after relief u/s 87A | 1,87,500 | 1,25,000 |
Health and Education Cess | 7,500 | 5,000 |
Total Tax Liability | 1,95,000 | 1,30,000 |
*Calculation didn't take into account any exemptions and deductions.
The above table shows the calculation for tax without any exemptions. Hence, INR 65,000 can be saved by a taxpayer by opting for the revised new tax regime. As previously mentioned, if your deduction claims are over INR 3.75 lakh, then opting for the old tax rates will be viable.
Annual Income beyond 15 lakh
The two tax options are identical for salaried individuals beyond an annual income of INR 15.5 lakh, provided they utilize the exemptions available under the old tax regime. The benefits stay similar up to the limit of INR 5.5 crore annual income, as beyond that, the surcharge rates will differ.
During the budget presentation, the FM stated that the highest surcharge rate of India is 42.74 per cent under both regimes. In order to boost takers for the alternate offering, the surcharge rate will be capped at 25 per cent against 37 per cent of the old tax regime. Hence, the highest surcharge level will be 42.74 per cent in the old regime, while the new tax regime will be maxed at 39 per cent.
