India¡¯s Finance Minister Nirmala Sitharaman presented her fifth union budget yesterday. Amid a slew of announcements pertaining to salaried taxpayers, the highlight remains the changes in the new income tax regime.?
Not only has the government made the new tax regime the ¡®default¡¯ one while keeping the option of the old regime intact, but even the tax slabs and rates in the new regime have been changed.
Also, income up to Rs 7 lakh has been made tax-free after the inclusion of a rebate under Section 87A in Budget 2023.
Budget 2023 has also proposed to allow a standard deduction of Rs 50,000 for salaried individuals under the new regime.
In 2020, the government introduced the new tax regime, post which comparisons between the old and new regimes were bound to happen. And these recent changes in the new tax regime further make it necessary for taxpayers to compare both regimes and select the one wherein they have to pay the least tax.
So let us compare the old and new tax regime (including the Budget 2023 changes) to help simplify the decision of choosing between the two, for you.
Also Read:?All You Need To Know About?Tax?Changes Announced In 2023?Budget
Under old tax regime, taxpayers can claim deductions under a wide array of sections under the Income Tax Act, such as Section 80C (home loan principal repayment, life insurance premium, tax saving mutual funds (ELSS), PPF, etc, Section 80D (health insurance premium) and Section 24b (home loan interest payment). Besides all this, many other exemptions and deductions are available in the old regime, such as?Leave Travel Allowance,?House Rent Allowance, and Conveyance allowance amongst others.
Tax slabs under the old regime are as follows:
Individuals aged below 60 years
Upto Rs 2.5 lakh NIL
Rs 2.5-5 lakh-5% (rebate under section 87A)
Rs 5 lakh- Rs 10 lakh 20%
Above Rs 10 lakh-30%
Individuals above 60 to 80 years
Upto Rs 3 lakh NIL
Rs 3-5 lakh 5%
Rs 5-10 lakh 20%
Above Rs 10 lakh 30%
Individuals above 80 years of age
Upto Rs 5 lakh NIL
Rs 5-10 lakh 20%
Above Rs 10 lakh 30%
Existing tax slabs under the new tax regime are as follows:
Upto Rs 2.5 lakh-NIL
Rs 2.5 lakh- Rs 5 lakh- 5%
Rs 5 lakh- Rs 7.5 lakh-10%
Rs 7.5 lakh- Rs 10 lakh-15%
Rs 10 lakh- Rs 12.5 lakh-20%
Rs 12.5 lakh- Rs 15 lakh-25%
Above Rs 15 lakh-30%
The taxpayer opting for the new tax regime will have to forgo many exemptions and deductions available in the old regime. In all there are around 70 deductions and exemptions that are not allowed in the new regime, out of which the most commonly used are listed below:
List of common Exemptions and deductions not allowed under New Tax rate regime?
Leave Travel Allowance
House Rent Allowance
Conveyance allowance
Daily expenses in the course of employment
Relocation allowance
Helper allowance
Children education allowance
Other special allowances [Section 10(14)]
Professional tax
Interest on housing loan (Section 24)
Deduction under Chapter VI-A deduction (80C,80D, 80E and so on) (Except Section 80CCD(2))
List of deductions allowed under the new Tax rate regime?
Transport allowance for specially-abled people
Conveyance allowance for expenditure incurred for travelling to work
Investment in Notified Pension Scheme under section 80CCD(2)
Deduction for employment of new employees under section 80JJAA
Depreciation u/s 32 of the Income-tax act except additional depreciation.
Any allowance for travelling for employment or on transfer
Under the new regime, tax slabs have been proposed to be changed after the announcement of Budget 2023 by FM Sitharaman.
Up to Rs 3 lakh: NIL
Rs 3 lakh- Rs 6 lakh: 5%
Rs 6 lakh-Rs 9 lakh: 10%
Rs 9 lakh-Rs 12 lakh: 15%
Rs 12 lakh- Rs 15 lakh: 20%
Over Rs 15 lakh: 30%??
Also, income up to Rs 7 lakh has been made tax-free as the rebate under Section 87A has been extended to the new tax regime as well.?Rebate under Section 87A helps taxpayers reduce their income tax liability. In the old regime, you can claim the said rebate if your total income, i.e. after Chapter VIA deductions, does not exceed Rs 5 lakh in a financial year. Your income tax liability in such a case becomes nil after claiming the rebate under Section 87A.
And in the new regime,?you can claim the said rebate if your total income is up to Rs 7 lakh. So, your income tax liability in such case becomes nil after claiming the rebate under Section 87A.
Budget 2023 has also proposed to allow a standard deduction of Rs 50,000 for salaried individuals under the new regime.
Using income tax calculator tool from cleartax, let us compare the income tax outgo in old and new tax regime (including Budget 2023 changes) to give you a fair idea about which one can be suitable for you (those aged below 60 years):
Scenario 1
Income from salary- Rs 12 lakh
Standard deduction- Rs 50,000
Life insurance premium-Rs 10,000
Contribution to PPF-Rs 6,000
Medical insurance premium- Rs 15,000
Tax due in old regime=Rs.1,54,128
Tax due in new regime=Rs. 93,600
In this case new regime can save you more tax.
Scenario 2
Income from salary 20 lakh
Standard deduction-Rs 50,000
HRA for a year-Rs 2 lakh
LTA- Rs 40,000
Life insurance premium-Rs 15,000
Contribution to PPF-Rs 10,000
Medical insurance premium- Rs 25,000
Interest paid on home loan in first year- Rs 4,46,200
Principal paid on home loan in first year- Rs 93,634
(Assuming Rs 50 lakh home loan, tenure 20 years, interest rate 9%, EMI Rs 44,986)
Tax due in old regime=Rs. 2,31,307
Tax due in new regime=Rs. 2,95,620
In this case old regime can save you more tax.
Scenario 3
Income from salary-Rs 7 lakh
Standard Deduction -Rs 50,000
HRA-80,000
Life insurance premium-Rs 10,000
Tax due in old regime=Rs. 25,480
Tax due in new regime=NIL
In this case the?new regime will be suitable for you.
Overall, the above calculations show that Budget 2023 changes have been able to make the new tax regime attractive.?But before selecting the regime for yourself, ensure to calculate the tax outgo in both regimes, according to your income, existing investments, insurance or other tax deductions eligible and then go for the one where your tax outgo is lower.
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