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New regime Vs Old Tax regime Which one is better for you

25 Apr 2023

The new financial year of 2023-2024 is now upon us. With it, the question of which Indian income tax regime is better for the individual taxpayer has also arisen. As a taxpayer, it is important to choose the regime under which you prefer to be taxed at the start of a new financial year. This will give you enough time to plan and structure your investments in a manner that helps you reduce your tax liability. 

So, which of these two regimes should you opt for? Here’s a detailed guide that can help you make the right decision. But before we take a look at the one that’s perfect for you, let’s first take a look at the regimes in detail. 

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An Introduction to the New Income Tax Regime 

Introduced in the Union Budget 2020, the new income tax regime is an optional personal taxation scheme that came into effect on April 01, 2020. Individual taxpayers as well as Hindu Undivided Families (HUFs) can opt to be taxed under this regime. 

The primary highlight of the new income tax regime was lower tax rates. However, this came at the cost of income tax deductions. Taxpayers opting for the new scheme of taxation became automatically ineligible to claim any deductions except for a few. 

Due to this, the rate of adoption of the new income tax was not as high as it was expected. Therefore, to make it more attractive the Finance Minister in her Union Budget 2023 presentation revamped the new taxation scheme. According to the new amendments, taxpayers opting for the scheme can now claim a few additional deductions and benefits for the financial year 2023 - 2024. This includes an increase to the rebate u/s 87A (from Rs. 12,500 to Rs. 25,000), standard deduction (Rs. 50,000), and contributions u/s 80CCH. 

Income Tax Slab Rates Under the New Income Tax Regime

Now that you’ve been introduced to the new income tax regime, let’s take a look at the slab rates applicable for the current financial year 2023 - 2024 and for the previous financial year 2022 - 2023. 

Taxable Income Slab

For the F.Y. 2022 - 2023

For the F.Y. 2023 - 2024

Up to Rs. 2.5 lakhs

Nil

Nil

Rs. 2.5 lakhs to Rs. 3 lakhs

5%

Nil

Rs. 3 lakhs to Rs. 5 lakhs

5%

5%

Rs. 5 lakhs to Rs. 6 lakhs

10%

5%

Rs. 6 lakhs to Rs.7.5 lakhs

10%

10%

Rs. 7.5 lakhs to Rs.9 lakhs

15%

10%

Rs. 9 lakhs to Rs.10 lakhs

15%

15%

Rs. 10 lakhs to Rs.12 lakhs

20%

15%

Rs. 12 lakhs to Rs.12.5 lakhs

20%

20%

Rs. 12.5 lakhs to Rs.15 lakhs

25%

20%

More than Rs. 15 lakhs

30%

30%

As you can see, the tax rates under the new income tax regime have been revised for the current financial year of 2023 - 2024.

An Introduction to the Old Income Tax Regime 

The income tax regime that was prevalent before the introduction of the new scheme is termed the old income regime. Although the income tax rates were higher in the old regime, taxpayers could claim many of their expenses as deductions from their total taxable income, which helped them save tax. 

Income Tax Slab Rates Under the Old Income Tax Regime

Compared to the new regime, the income slabs of the old scheme are much simpler. However, the rate of tax in the old regime is far higher than in the new regime. Here’s a quick look at the slab rates for both the previous financial year of 2022 - 2023 as well as the current financial year of 2023 - 2024.

Taxable Income Slab

Tax Rates for Non-Senior Citizens 

Tax Rates for Senior Citizens (above 60, but below 80 years of age) 

Tax Rates for Super Senior Citizens (above 80 years of age) 

Up to Rs. 2.5 lakhs

Nil

Nil

Nil

Rs. 2.5 lakhs to Rs. 3 lakhs 

5%

Nil

Nil

Rs. 3 lakhs to Rs. 5 lakhs

5%

5%

Nil

Rs. 5 lakhs to Rs. 10 lakhs

20%

20%

20%

More than Rs. 10 lakhs 

30%

30%

30%

New Tax Regime Vs. Old Tax Regime: Which one is better for you?

Since there have been quite a few changes to the new tax regime introduced in the Union Budget 2023, the answer to this question will vary depending on the financial year. Here’s a closer look.

For the Financial Year 2022 - 2023 

If you’re a salaried individual with a taxable income of up to Rs. 5.5 lakhs and are not claiming deductions under any of the applicable sections of the income tax act, then the old income tax regime would be better for you. You get the benefit of a standard deduction of Rs. 50,000 and a rebate of ₹12,500 u/s 87A. 

However, if you’re a self-employed individual not claiming any deductions, you can choose either the old regime or the new regime. In this case, you will not be required to pay tax on income of up to Rs. 5 lakhs on both these schemes. 

That said, if you wish to claim deductions such as HRA, LTA, standard deduction, interest on a home loan, and 80C, 80D, 80TTA, and 80TTB deductions, then opting for the old tax regime would be better for you. This will hold irrespective of your total taxable income and whether you’re a salaried individual or a self-employed individual. 

For the Financial Year 2023 - 2024

If you’re a salaried individual and your total taxable income for this financial year is Rs. 7.5 lakhs or less, choosing the new tax regime would be the better option for you. On the other hand, if you’re a self-employed individual and your total taxable income for the financial year is Rs. 7 lakhs or less, you can consider opting for the new tax regime.  

However, if you wish to claim deductions, then the equation will differ a little. Here’s a table to help you understand which of these two regimes will be better for you. 

Taxable Income 

Income Tax Regime

Rs. 10 lakhs

If your total deductions are equal to or more than Rs. 2,62,500 - Old Tax Regime 

 

If your total deductions are less than Rs. 2,62,500 - New Tax Regime 

Rs. 12 lakhs

If your total deductions are equal to or more than Rs. 3,00,000 - Old Tax Regime 

 

If your total deductions are less than Rs. 3,00,000 - New Tax Regime 

Rs. 15 lakhs

If your total deductions are equal to or more than Rs. 3,58,000 - Old Tax Regime 

 

If your total deductions are less than Rs. 3,58,000 - New Tax Regime 

Rs. 20 lakhs to Rs. 30 lakhs

If your total deductions are equal to or more than Rs. 3,75,000 - Old Tax Regime 

 

If your total deductions are less than Rs. 3,75,000 - New Tax Regime 

Conclusion

So, there you have it. With this, you must now be aware of which regime to choose as your preferred taxation method. The new tax regime will always be the better option if you don’t have any deductions to claim. If you have deductions, however, you will have to weigh the tax benefits provided by both the old and the new regimes and choose the one that offers the maximum savings. 

 

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