Which one should I opt. old or new tax regime.

 

There is a lot of uncertainty among taxpayers about which tax regime to choose following the recent 2023 Budget. The government has included several incentives in the budget to encourage taxpayers to adopt the new tax regime. This suggests that the government's aim is to have taxpayers switch to the new regime and gradually phase out the old one. While the new regime is now the default option, the old tax regime will still be available. Let's examine both regimes and determine which one to select in 2023.

New Tax Regime : In Budget 2020, a new tax regime was launched, which involved changes to the tax slabs and concessional tax rates for taxpayers. However, those who chose the new regime were not able to avail certain exemptions and deductions, including HRA, LTA, 80C, 80D, and others. As a result, the new tax regime was not very popular among taxpayers. To encourage more taxpayers to adopt the new regime, the government introduced five significant changes in Budget 2023. These changes are:

·       Higher Tax Rebate Limit: Full tax rebate on an income up to ₹7 lakhs has been introduced. Whereas, this threshold is ₹5 lakhs under the old tax regime. This means that taxpayers with an income of up to ₹7 lakhs will not have to pay any tax at all under the new tax regime! 

·       Streamlined Tax Slabs: The tax exemption limit has been increased to ₹3 lakhs and the new tax slabs are: 

Total Income	Rate of Tax
up to ₹3,00,000	Nil
₹3,00,001- ₹6,00,000	5%
₹6,00,001- ₹9,00,000	10%
₹9,00,001- ₹12,00,000	15%
₹12,00,001- ₹15,00,000	20%
₹15,00,001 and above	30%

The tax rates under both the regimes compare as below:

Income Slab	Old Tax Regime	New tax Regime (until 31st March 2023)	New Tax Regime (From 1st April 2023)
₹0 - ₹2,50,000	-	-	-
₹2,50,000  - ₹3,00,000	5%	5%	-
₹3,00,000 - ₹5,00,000	5%	5%	5%
₹5,00,000 - ₹6,00,000	20%	10%	5%
₹6,00,000 - ₹7,50,000	20%	10%	10%
₹7,50,000 - ₹9,00,000	20%	15%	10%
₹9,00,000 - ₹10,00,000	20%	15%	15%
₹10,00,000 - ₹12,00,000	30%	20%	15%
₹12,00,000 - ₹12,50,000	30%	20%	20%
₹12,50,000 - ₹15,00,000	30%	25%	20%
>₹15,00,000	30%	30%	30%

·       Standard Deduction and Family Pension Deduction: 

·       Salary income: The standard deduction of ₹50,000, which was only available under the old regime, has now been extended to the new tax regime as well. This, along with the rebate, makes ₹7.5 lakhs as your tax-free income under the new regime.

·       Family pension: Those receiving family pension can claim a deduction of: ₹15,000 or 1/3rd of pension, whichever is lower.

·       Reduced Surcharge for High Net Worth Individuals: The surcharge rate on income over ₹5 crores has been reduced from 37% to 25%. This move will bring down their effective tax rate 42.74% to 39%.

·       Higher Leave Encashment Exemption: The exemption limit for non-government employees has been raised from ₹3 lakhs to ₹25 lakhs, an 8-fold increase.

·       Default Regime: Starting from FY 2023-24, the new income tax regime will be set as the default option. If you want to continue using the old regime, you must submit a form at the time of return filing. You will have the option to switch between the two regimes annually.

Old Tax Regime

The old regime refers to the tax system that was in place before the new regime was introduced. This system offers more than 70 exemptions and deductions, including HRA and LTA, which can help lower your taxable income and reduce your tax liability. One of the most popular and generous deductions under this regime is Section 80C, which permits a reduction of taxable income up to Rs. 1.5 lakh. Taxpayers are provided with the option to choose between the old and new tax regimes

Difference Between Old Vs New Tax Regime: Which is Better?

Choosing between the new and old tax regimes depends on the tax savings, deductions, and exemptions that you qualify for under the old regime. To simplify this decision-making process, we have computed a breakeven point for different income levels (refer to the table below) applicable to salaried individuals below 60 years of age. This will assist you in determining which tax regime is more beneficial for you.

Breakeven threshold for deciding between New vs Old tax regimes

The breakeven point is the amount at which there is no disparity in tax liability between the old and new tax regimes. If your eligible deductions and exemptions under the old tax regime surpass the breakeven threshold for your income level, it is advisable to continue with the old regime. Conversely, if the breakeven threshold is greater, then switching to the new tax regime would be more advantageous

If you have salary income:

Income Level	Less: Standard Deduction	Net Income	Tax under both regimes	Additional Deductions (over & above standard deduction) required in Old Regime to Break Even	Which Tax Regime to choose- old or new?
₹7,00,000	₹50,000	₹6,50,000	₹0	₹1,50,000	You will benefit only in new regime.
₹8,00,000	₹50,000	₹7,50,000	₹36,400	₹1,38,500	Old regime: if deductions > Rs 1,38,500 New regime: if deductions < Rs 1,38,500
₹9,00,000	₹50,000	₹8,50,000	₹41,600	₹2,12,500	Old regime: if deductions > Rs 2,12,500 New regime: if deductions < Rs 2,12,500
₹10,00,000	₹50,000	₹9,50,000	₹54,600	₹2,50,000	Old regime: if deductions > Rs. 2,50,000 New regime: if deductions < Rs 2,50,000
₹12,50,000	₹50,000	₹12,00,000	₹93,600	₹3,12,500	Old regime: if deductions > Rs. 3,12,500 New regime: if deductions < Rs 3,12,500
₹15,00,000	₹50,000	₹14,50,000	₹1,45,600	₹3,58,000	Old regime: if deductions > Rs. 3,58,000 New regime: if deductions < Rs 3,58,000
₹15,50,000	₹50,000	₹15,00,000	₹1,56,000	₹3,75,000	Old regime: if deductions > Rs. 3,75,000 New regime: if deductions < Rs 3,75,000
₹16,00,000	₹50,000	₹15,50,000	₹1,71,600	₹3,75,000	Old regime: if deductions > Rs. 3,75,000 New regime: if deductions < Rs 3,75,000

If you have income other than salary:

Tax under Old vs New regime 

Here are a few calculations to which will help you decide between old vs the new tax regime:

·       When total deductions are ₹1.5 lakhs or less: New regime will be beneficial

·       When total deductions are more than ₹3.75 lakhs: Old regime will be beneficial

·       When total deductions are between ₹1.5lakhs to ₹3.75 lakhs: will depend on your income level

When total deductions are ₹1.5 lakhs or less: New regime will be beneficial

When total deductions are more than ₹3.75 lakhs: Old regime will be beneficial

When total deductions are between ₹1.5 lakhs to ₹3.75 lakhs: Will depend on various income levels

What deductions and exemptions are allowed under the new tax regime?

Here is a comparison between the deductions and exemptions available under the new and the old tax regime:

Particulars	Old Tax Regime	New tax Regime  (until 31st March 2023)	New Tax Regime    (From 1st April 2023)
Income level for rebate eligibility	₹ 5 lakhs	₹ 5 lakhs	₹ 7 lakhs
Standard Deduction	₹ 50,000	-	₹ 50,000
Effective Tax-Free Salary income	₹ 5.5 lakhs	₹ 5 lakhs	₹ 7.5 lakhs
Rebate u/s 87A	₹12,500	₹12,500	₹25,000
HRA Exemption	✓	X	X
Leave Travel Allowance (LTA)	✓	X	X
Other allowances including food allowance of Rs 50/meal subject to 2 meals a day	✓	X	X
Standard Deduction (Rs 50,000)	✓	X	✓
Entertainment Allowance and Professional Tax	✓	X	X
Perquisites for official purposes	✓	✓	✓
Interest on Home Loan u/s 24b on: Self-occupied or vacant property	✓	X	X
Interest on Home Loan u/s 24b on: Let-out property	✓	✓	✓
Deduction u/s 80C (EPF | LIC | ELSS | PPF | FD | Children's tuition fee etc)	✓	X	X
Employee's (own) contribution to NPS	✓	X	X
Employer's contribution to NPS	✓	✓	✓
Medical insurance premium - 80D	✓	X	X
Disabled Individual - 80U	✓	X	X
Interest on education loan - 80E	✓	X	X
Interest on Electric vehicle loan - 80EEB	✓	X	X
Donation to Political party/trust etc - 80G	✓	X	X
Savings Bank Interest u/s 80TTA and 80TTB	✓	X	X
Other Chapter VI-A deductions	✓	X	X
All contributions to Agniveer Corpus Fund - 80CCH	✓	Did not exist	✓
Deduction on Family Pension Income	✓	✓	✓
Gifts upto Rs 5,000	✓	✓	✓
Exemption on voluntary retirement 10(10C)	✓	✓	✓
Exemption on gratuity u/s 10(10)	✓	✓	✓
Exemption on Leave encashment u/s 10(10AA)	✓	✓	✓
Daily Allowance	✓	✓	✓
Conveyance Allowance	✓	✓	✓
Transport Allowance for a specially-abled person	✓	✓	✓

FAQs on Old Tax Regime vs New Tax Regime

Which tax regime is better for 7 lakhs?

If you have an income of Rs 7 lakhs, the new tax regime will benefit you.

Which tax regime is better for 10 lakhs salary?

If you have an income of Rs 10 lakhs, the old tax regime will benefit you only if you have made tax savings investments (deductions other than standard deductions) of over Rs 2,62,500. 

If these deductions are less than Rs 2,62,500, then the new regime will be better for you.

Which tax regime is better for 12 lakhs salary?

The old tax regime is good for you if you have invested more than Rs 3,00,000 in tax saving schemes. If you have invested or spent less than Rs 3,00,000, then the new regime will be better for you.

Which tax regime is better for 15 lakhs salary?

Which regime is better for you will depend on the amount of tax-saving investments you have made:

·       Old regime: if tax-saving investments > Rs. 3,58,000

·       New regime: if tax-saving investments < Rs 3,58,000

Which tax regime is better for 20 lakhs salary?

If you have an income of Rs 20 lakhs, the best regime for you will depend on the tax deductions you are eligible for:

·       Old regime: if tax-saving investments > Rs. 3,75,000

·       New regime: if tax-saving investments < Rs 3,75,000

Which tax regime is better for 25 lakhs salary?

If you have an income of Rs 20 lakhs, the best regime for you will depend on the tax deductions you are eligible for:

·       Old regime: if tax-saving investments > Rs. 3,75,000

·       New regime: if tax-saving investments < Rs 3,75,000

Which tax regime is better for 30 lakhs salary?

If you have an income of Rs 20 lakhs, the new regime will benefit you if your tax deductions are less than Rs 3,75,000. Else, opt-in for the old tax regime.