The Budget 2023 came up with significant misunderstandings among the public over the decision regarding the previous and current tax regimes. The government included several advantages in the 2023 budget to stimulate the implementation of the new system.
The governing body implemented the New Tax Regime to streamline taxes. Many individuals find it difficult to file for tax breaks and deductions and keep proper documents handy. The administration hopes that the new tax regime will reduce the difficulty of compliance. You’ll not have to stress about deductions; instead, you can make tax-saving investments.
If you want your tax planning to be simple, New Regime is the appropriate option.
However, if you are happy with compliance as long as you can save the most money on taxes, you must carefully weigh the two options before making your decision. Below is a full comparative explanation that will help you decide whether to pick the old or new tax regime.
The Indian Income Taxation system levies taxes on individuals who pay taxes based on their earnings. However, starting in 2020–21, the process of charging taxes was modified.
An entirely new tax regime was introduced, with much lower tax rates and more tax-saving alternatives. The government introduced advantages in the 2023 budget to help with the transition to the updated system.
Check out here the differences in taxation rates between the two regimes, the possibilities for deductions, and real-life instances regarding how the new system would affect each tax bracket.
What Is the Meaning of an Income Tax Slab?
In India, the income tax is levied on people using a slab structure, with various tax rates allotted based on various income levels. Tax rates rise in proportion to an individual’s income. This sort of taxation enables a more equitable and progressive tax structure in our nation. Income tax brackets are updated regularly, usually around the budget season. The slab rates vary for multiple categories of taxpayers.
New Tax Regime
Budget 2020 featured a new tax framework that adjusted tax slabs and provided taxpayers with concessional rates for paying taxes. However, people who choose the new regime will be unable to take advantage of exemptions and breaks, including HRA, LTA, 80C, 80D, and others. As a result, the new tax regime failed to gain traction.
To encourage payers to comply with the new regime, the government adopted five important modifications in Budget 2023, which will remain unchanged for Fiscal Year 2024-2025. Because nothing new was included in the Interim Budget 2024. These Are:
Maximum Tax Rebate Limit: A complete tax break on earnings up to ₹7 lakhs has been set up. According to the previous tax regime, the income limit was ₹5 lakhs. The current tax system exempts people with incomes up to ₹7 lakhs from paying any taxes.
Simplified Tax Slabs: The tax-exempt ceiling has been raised to ₹3 lakhs.
The Newly Introduced 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% |
Tax Rates for the Two Regimes Have Been Compared As Follows:
| Income Slab | Old Tax Regime | New Tax Regime (until 31st March 2023) | New Tax Regime (From 1st April 2023) |
| ₹0 – ₹2,50,000 | – | – | – |
| ₹2,50,001 – ₹3,00,000 | 5% | 5% | – |
| ₹3,00,001 – ₹5,00,000 | 5% | 5% | 5% |
| ₹5,00,001 – ₹6,00,000 | 20% | 10% | 5% |
| ₹6,00,001 – ₹7,50,000 | 20% | 10% | 10% |
| ₹7,50,001 – ₹9,00,000 | 20% | 15% | 10% |
| ₹9,00,001 – ₹10,00,000 | 20% | 15% | 15% |
| ₹10,00,001 – ₹12,00,000 | 30% | 20% | 15% |
| ₹12,00,001 – ₹12,50,000 | 30% | 20% | 20% |
| ₹12,50,001 – ₹15,00,000 | 30% | 25% | 20% |
| >₹15,00,000 | 30% | 30% | 30% |
Normal and familial pension deductions are based on salary income. The ₹50,000 standard deduction, formerly solely available within the old regime, has been recently stretched to the revised tax regime. The new regime allows for a tax-free income of ₹7.5 lakhs, including the rebate.
Family pensioners can claim a reduction of ₹15,000 or 1/3 of their pensions, whatever is lower.
The surcharge rate for income above ₹5 crores has been decreased from 37% to 25%. This change will reduce their actual rate of taxation from 42.74% to 39%.
Private sector employees now have an 8-fold increase in their leave encashment relief limit, from ₹3 lakhs to ₹25 lakhs.
Default Regime: Beginning with Fiscal Year 2023–24, the newly implemented income tax regime will serve as the default one. If you want to keep using the previous system, you have to file your return of income taxes along with Form 10 IEA by the due date set aside. You will be able to choose between both regimes every year to examine the tax savings.
Old Tax Regime
The old regime is the tax structure that existed before the implementation of the revised one. This regime provides over 70 exclusions and deductions, which include HRA and LTA. These may lower your taxable earnings and cut your tax obligations.
Section 80C is among the most significant and advantageous deductions, allowing taxpayers to reduce their taxable income by up to Rs. 1.5 lakh. Taxpayers can choose between the existing and new tax regimes.
Which is Better for You: The Old or the New Tax Regime?
Check the Table and Decide to opt for the Best Option for You
| Income Level | Break-even Point | Decision |
| Up to ₹2,50,000 | – | No tax liability in either regime, so no decision is required. |
| ₹2,50,001 – ₹3,00,000 | ₹2,50,000 | No difference between regimes, as the tax rate is the same. |
| ₹3,00,001 – ₹5,00,000 | ₹2,50,000 | Consider the old regime if eligible deductions exceed ₹50,000. Otherwise, the new regime may result in lower tax. |
| ₹5,00,001 – ₹6,00,000 | ₹2,50,000 | Consider the old regime if eligible deductions exceed ₹1,50,000. Otherwise, the new regime may result in lower tax. |
| ₹6,00,001 – ₹7,50,000 | ₹2,50,000 | Consider the old regime if eligible deductions exceed ₹2,50,000. Otherwise, the new regime may result in lower tax. |
| ₹7,50,001 – ₹9,00,000 | ₹2,50,000 | Consider the old regime if eligible deductions exceed ₹3,50,000. Otherwise, the new regime may result in lower tax. |
| ₹9,00,001 – ₹10,00,000 | ₹2,50,000 | Consider the old regime if eligible deductions exceed ₹4,50,000. Otherwise, the new regime may result in lower tax. |
| ₹10,00,001 – ₹12,00,000 | ₹2,50,000 | Consider the old regime if eligible deductions exceed ₹5,50,000. Otherwise, the new regime may result in lower tax. |
| ₹12,00,001 – ₹12,50,000 | ₹2,50,000 | Consider the old regime if eligible deductions exceed ₹6,00,000. Otherwise, the new regime may result in lower tax. |
| ₹12,50,001 – ₹15,00,000 | ₹2,50,000 | Consider the old regime if eligible deductions exceed ₹6,50,000. Otherwise, the new regime may result in lower tax. |
| Above ₹15,00,000 | ₹2,50,000 | Consider the old regime if eligible deductions exceed ₹7,00,000. Otherwise, the new regime may result in lower tax. |
The Breakeven Criterion for Choosing Between New and Existing Tax Regimes
The breakeven point is the amount at which both tax regimes will have the same liability for taxes.
When your total qualified benefits and exemptions under the old tax regime exceed the break-even limit for your earnings level, you should remain in that regime. However, on the other side, when the breakeven point is higher, switching to the newer tax system is more advantageous.
Exemption and Deduction (Old Tax Regime)
| Exemptions and Deductions |
| Leave Travel Allowance |
| House Rent Allowance |
| Standard deduction of Rs 50,000 for salaried individuals |
| Deductions under Section 80TTA/80TTB (on savings account interest) |
| Entertainment allowance deduction and professional tax (for government employees) |
| Tax relief on interest paid on home loan u/s 24 |
| Deduction of Rs 15,000 from family pension under clause (ii a) (Section 57) |
| Tax-saving investment deductions under Chapter VI-A (80C, 80D, 80E, 80CCC, 80CCD, 80DD, 80DDB, 80EE, 80EEA, 80EEB, 80G, 80GG, 80GGA, 80GGC, 80IA, 80-IAB, 80-IAC, 80-IB, 80-IBA, etc) |
The Newly Implemented Tax Regime Includes Significant Advantages For:
| Source of Income |
| Income earned from life insurance. |
| Income from agricultural activities. |
| Standard rent deductions. |
| Retrenchment compensation |
| Retirement benefits, including leave encashment. |
| VRS proceeds up to Rs 5 lakh. |
| Death benefits |
| Scholarship income for educational purposes. |
How to Calculate Income Tax Based on Income Slabs?
Let us assume a person makes an income of Rs. 8,00,000. The chart below displays the tax calculation according to the current and previous regimes:
| Particulars | Tax under the Old Regime (In Rs.) | Tax under the New Regime (AY 2024-25 onwards) (In Rs.) |
| Salary | 8,00,000 | 8,00,000 |
| Less: Standard Deduction | (50,000) | (50,000) |
| Taxable Income | 7,50,000 | 7,50,000 |
| Total Tax | (0%*2,50,000) + (5%*2,50,000) + (20%*2,50,000) | (0%*3,00,000) + (5%*3,00,000) + (10%*1,50,000) |
| = 62,500 | = 30,000 | |
| Cess @4% | 2,500 | 1,200 |
| Total Tax Inclusive Of Cess | 65,000 | 31,200 |
How Can You Decide Between Old and New Tax Regimes?
When selecting between the two tax regimes, it is essential to look at the tax breaks and reductions available according to the previous tax regime.
Deciding on the regime with the lowest tax burden is the logical option. Additionally, it matters most to notify the employer of this decision so that the applicable tax deducted at source (TDS) will be taken from your salary.
If you’ve suffered losses from housing property, gains from capital, or a business-related profession, you have to think about them when deciding on a regime. In addition to the present year’s losses, the previous year’s losses that were eligible for set-off will also expire.
A Few Things to Keep in Mind If You Choose the New Tax Regime:
It’s important to keep in mind that the tax rates under the new regime are equal for all types of people, including individuals, senior citizens, and super-senior citizens.
People with a taxable net income of below or equal to Rs 7 lakh will be considered eligible for a tax break under Section 87A, which means their tax burden will be zero under the new regime.
What is a surcharge, and what are the appropriate rates?
If your income exceeds a specific amount, you must pay additional taxes added to your current tax rate. This imposes an additional tax on those with high earnings.
The Surcharge Rates Are as Follows:.
- Income tax is 10% if the overall earnings exceed Rs. 50 lakh but less than Rs. 1 crore.
- If your total income exceeds Rs. 1 crore but is less than Rs. 2 crore, you are subject to a 15% income tax.
- If your total income is more than Rs. 2 crore but less than Rs. 5 crore, you would be taxed at 25%.
- 37% income tax if the overall earnings exceed Rs. 5 crore.
Can anyone claim 80C deductions and switch to the new income tax slab system?
No, the new tax plan eliminates several deductions and exemptions that were previously accessible. If a person chooses a new tax regime, he or she is unable to claim deductions under Section 80C.
Bottom Line
Many people become unclear about the differences between the previous and present tax regimes. The updated income tax regime is aimed at helping people who possess additional personal obligations.
These may be reimbursement of personal or vehicle financing, healthcare expenses of parents or kids, looking to reduce the headache or having little tax breaks due to being ineligible for Section 10 deductions, etc. Senior adults, who get a significant amount of money from interest, may reap the rewards from Section 80TTB, which enables taxpayers to claim Rs. 50,000 as an interest-based earnings deduction and realise a bit more security within the old tax regime.
Specifically, old and new tax systems have benefits and drawbacks as well. The old tax regime encourages taxpayers to save, whereas the current tax structure benefits professionals with lesser wages and assets, which leads to smaller deductions. The newly introduced tax system is seen as better and more straightforward, with fewer records and a lower risk of tax-related fraud.
Yet, because every person’s income level, deductions, and exemptions are distinctive, an in-depth analysis of both regimes is required. Thus, taxpayers will decide which is most advantageous for them.
Many people may discover that the new tax structure is more advantageous. The most attractive aspect is that it allows ordinary taxpayers a great deal of freedom. When filing returns, they have the option of returning to the old regime.