Going with the old regime vs new regime of taxation can be a tough choice to make. To arrive at an informed decision, understand the impact that both regimes have on your tax liability.
While the old regime has its perks in the form of 70+ deductions and exemptions, the new tax regime, after the recent Budget announcement, offers some great benefits too.
To understand what both these regimes mean, their differences and how you can choose between them, read on.
Introduced in 2020, the new tax regime has comparatively fewer deductions and exemptions but better tax slabs. Moreover, the Budget 2023 introduced some key changes in the regime.
Under the new regime, income up to ₹7 lacs is now eligible for a full tax rebate. This means you will not have to pay any taxes. The basic tax exemption limit has also been increased to ₹3 lacs.
The standard deduction of ₹50,000 is also available under this regime. HNIs will also enjoy a reduced surcharge, with the new tax rate being 39%. The leave encashment exemption limit was also increased to ₹25 lacs.
Lastly, the new regime has been made the default regime. So, if you want to file a return under the old regime, you will need to switch at the time of filing by submitting a form.
The old regime has been in place long before the new one. It offers 70+ deductions and exemptions to taxpayers under different heads.
The old regime was the default option until now and you can enjoy deductions of up to ₹1.5 lacs under Section 80C alone. However, the basic exemption limit in this regime is lower than the new one. That being said, you can still enjoy the standard deduction.
Understanding the tax slabs, deductions and exemptions for both regimes is crucial. This information can help you understand the features of the old vs new tax regime and make a smart choice.
Tax Slabs:
| Income Slab | New Tax Regime | Old Tax Regime |
|---|---|---|
| ₹0 – ₹2,50,000 | 0% | 0% |
| ₹2,50,000 – ₹3,00,000 | 0% | 5% |
| ₹3,00,000 – ₹5,00,000 | 5% | 5% |
| ₹5,00,000 – ₹6,00,000 | 5% | 20% |
| ₹6,00,000 – ₹7,50,000 | 10% | 20% |
| ₹7,50,000 – ₹9,00,000 | 10% | 20% |
| ₹9,00,000 – ₹10,00,000 | 15% | 20% |
| ₹10,00,000 – ₹12,00,000 | 15% | 30% |
| ₹12,00,000 – ₹12,50,000 | 20% | 30% |
| ₹12,50,000 – ₹15,00,000 | 20% | 30% |
| ₹15,00,000 | 30% | 30% |
Disclaimer: The tax slabs for the new regime are applicable from 01/04/2023
Deductions and Exemptions:
| Particulars | New Tax Regime | Old Tax Regime |
|---|---|---|
| Standard deduction | Available | Available |
| HRA | Not Available | Available |
| LTA | Not Available | Available |
| Interest on home loan | Not Available (self-occupied/vacant property)Available (let-out property) | Available |
| NPS (employer contribution) | Available | Available |
| Family Pension Income Deduction | Available | Available |
| Conveyance | Available | Available |
| Entertainment Allowance and Professional Tax | Not Available | Available |
| Deductions u/s 80C | Not Available | Available |
Disclaimer: The above is not an exhaustive list of deductions and exemptions.
A key difference between the new and old tax regime is that the former has fewer deductions and exemptions but an increased limit for tax-free income. To consider the old vs new regime, be sure to calculate your tax liability in both cases.
To calculate your tax liability, consider all the deductions and exemptions you can claim under both regimes. This will give you your net taxable income. Based on that, you can calculate the tax you owe as per the slab rate applicable to you.
In conclusion, computing your tax obligation will help you choose between the old or new tax regime with ease. You can also claim deductions for a personal loan under the old regime if you use the funds for specified purposes.
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This answer will vary based on your unique situation. Compare the old vs new tax regime based on your earnings and the deductions you can claim. Then, choose the regime that lowers your tax liability.
If you have an annual income of ₹15 lacs, compare the old vs new tax regime based on the deductions you claim. For example, if your deductions go above ₹3.58 lacs, you may benefit from the old regime. If not, the new regime may be a better option.
With an income of ₹22 lacs, you can computer your tax obligation as per the old regime vs new regime based on the deductions that reduce your taxes. With a deduction of ₹4.25 lacs, your liability in both regimes is the same. However, if you can get a higher amount as a deduction, the old regime can help you pay less tax.
A few key benefits under the new regime are that the tax rebate limit has been extended to ₹7 lacs, and the tax exemption limit has been increased to ₹3 lacs. You can also enjoy the standard deduction of ₹50,000 in the new tax regime, which means that if your income is up to ₹7.5 lacs, you do not need to pay tax.
A disadvantage of this regime is that you get to enjoy fewer tax deductions and exemptions as compared to the old regime.
The preferred and ideal income tax slab, under any regime, for a salaried individual depends on the deductions and exemptions they can claim.
Yes, you can switch between new and old regimes on an annual basis. However, keep in mind that from 2023-24 onwards, the new regime will be the default regime. To file returns under the old regime, you will have to fill out specific forms and inform your employer in advance.
To save tax under the new regime, you will need to plan your investments as per the applicable exemptions and deductions. Since the new regime does not have as many, doing this is crucial in increasing your tax savings.
