In Budget 2020, government introduced ‘new tax regime’ scheme where taxpayers could pay taxes at a lower rate without availing any exemptions and various deductions that were available to a tax payer.
In Budget 2020, government introduced ‘new tax regime’ scheme where taxpayers could pay taxes at a lower rate without availing any exemptions and various deductions that were available to a tax payer. Thus the idea was to pay tax at a lower rate on the entire taxable income. In 2023, government moved one step further where government further made alterations to the new tax regime scheme, thereby encouraging the taxpayers to opt for it and pay tax at reduced rates without opting for deductions and exemptions. To choose between the tax regimes which save an individual from paying more taxes, there are many factors to be considered. These factors are summarized below:
- Tax Exemption Limit: The tax exemption limit under old tax regime is ₹ 2,50,000/- whereas the new tax regime offers tax exemption till ₹ 3,00,000/-
- Income Tax Rates: The Income Tax rates for Old and New Tax Regime (with further alterations applicable from 1st April 2023) are as below:
Income Slab Old Tax Regime New Tax Regime (Applicable upto 31st March 2023) New Tax Regime (Applicable from 1st April 2023) ₹ 0 to ₹ 2,50,000/- Nil Nil Nil ₹ 2,50,001/- to ₹ 3,00,000/- 5% 5% 5% ₹ 3,00,001 to ₹ 5,00,000/- 5% 5% 5% ₹ 5,00,001 to ₹ 6,00,000/- 20% 10% 5% ₹ 6,00,001/- to ₹ 7,50,000/- 20% 10% 10% ₹ 7,50,001/- to ₹ 9,00,000/- 20% 15% 10% ₹ 9,00,001/- to ₹ 10,00,000/- 20% 15% 15% ₹ 10,00,001/- to ₹ 12,00,000/- 30% 20% 15% ₹ 12,00,000/- to ₹ 12,50,000/- 30% 20% 20% ₹ 12,50,001/- to ₹ 15,00,000/- 30% 25% 20% Income > ₹ 15,00,000/- 30% 30% 30% - Surcharge Rates:The rates of surcharge are mostly same in both the tax regimes except for the income above ₹ 5 crore where the rate of surcharge is lower in the new tax regime. The applicable rates of surcharge under old and new tax regime are as follows:
Income ₹ Old Tax Regime New Tax Regime Upto ₹ 50 lakh Nil Nil ₹ 50 lakh to ₹ 1 crore 10% 10% ₹ 1 crore to ₹ 2 crore 15% 15% ₹ 2 crore to ₹ 5 crore 25% 25% Above ₹ 5 crore 37% 25% - Tax Rebate:The tax rebate available under old regime is ₹ 5 lakh. However the new regime offers full tax rebate on income upto ₹ 7 lakh. Thus under new tax regime, no tax shall be paid for income upto ₹ 7 lakh.
- Deductions and exemptionsThe new tax regime offers lower tax rates provided no deductions and exemptions are claimed by the taxpayer. However, in budget 2023, a deduction of standard deduction and family pension has been made available. The list of deductions under new and old tax regime can be listed as below:
Deductions / Exemptions Old Tax Regime New Tax Regime Upto 31st March 2023 From 1st April 2023 HRA Exemption Available Not Available Not Available Leave Travel Allowance (LTA) Available Not Available Not Available Food Allowance Available Not Available Not Available Standard Deduction (Rs 50,000) Available Not Available Available Entertainment Allowance and Professional Tax Available Not Available Not Available Perquisites received for official purposes Available Available Available Interest on Home Loan u/s 24b Available Not Available Not Available Deduction u/s 80C (EPF, LIC, ELSS, PPF, FD, Children’s tuition fee, Home Loan Principal Repayment, etc) Available Not Available Not Available Employee’s contribution to NPS Available Not Available Not Available Employer’s contribution to NPS Available Available Available Medical insurance premium – 80D Available Not Available Not Available Disabled Individual – 80U Available Not Available Not Available Interest on education loan – 80E Available Not Available Not Available Interest on Electric vehicle loan – 80EEB Available Not Available Not Available Donation to Political party/trust – 80G Available Not Available Not Available Bank Interest u/s 80TTA and 80TTB Available Not Available Not Available Other Chapter VI-A deductions Available Not Available Not Available All contributions to Agni veer Corpus Fund – 80CCH Available Not Available Available Deduction on Family Pension Income Available Available Available Gifts upto Rs 5,000 Available Available Available Exemption on voluntary retirement & gratuity Available Available Available Exemption on Leave encashment Available Available Available - Tax Calculator: For the ease of taxpayers, the income tax department has provided the tax calculator which will calculate and compare the taxes under old and new tax regime. This tax calculator can be used on below link:
https://incometaxindia.gov.in/Pages/tools/115bac-tax-calculator-finance-bill-2023.aspx
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