Finance Minister Nirmala Sitharaman introduced a new tax regime in the Union budget 2020 that offers lower tax rates for individuals who forego most of their exemptions and deductions. This new regime received mixed reactions from taxpayers. While some welcomed the lower tax rates, others preferred the old regime with its various exemptions and deductions.
In this blog, we will explore the advantages and disadvantages of the new tax regime as well as the old tax regime. We hope this blog helps you pick the right tax regime for your income and preferences.
Tax Slabs: Old and New Tax Regime Rates
|
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%
|
Changes in the Basic Exemption Limits
|
Age
|
New Regime
Exemption Limit
(AY 2024-25 onwards)
|
New Regime Exemption Limit
(up to AY 2023-24)
|
Old Regime Exemption Limit
|
|
People Below 60 Years of Age
|
INR 3,00,000
|
INR 2,50,000
|
INR 2,50,000
|
|
People Between 60 to 80 Years of Age
|
INR 3,00,000
|
INR 2,50,000
|
INR 3,00,000
|
|
People Above 80 Years of Age
|
INR 3,00,000
|
INR 2,50,000
|
INR 5,00,000
|
Old Tax Regime Advantages and Disadvantages
|
Advantages
|
Disadvantages
|
|
1. Exemptions and deductions: You can opt for various exemptions and deductions under the old regime tax. For example, you can claim the standard deduction, deduction on home loan interest, medical expenses, education loan interest, etc. You can reduce your tax liability by claiming these deductions.
|
1. Complex tax structure: The old regime is complex, with multiple exemptions and deductions. It may get difficult for taxpayers to understand and comply with tax laws as a result.
|
|
2. Investment options: Certain investments, such as Public Provident Fund (PPF), National Pension Scheme (NPS), and Equity-Linked Saving Scheme (ELSS), qualify for tax deductions under the old tax regime. This encourages taxpayers to invest in these instruments for long-term wealth creation and tax saving.
|
2. Limited flexibility: The old tax regime does not offer much flexibility to taxpayers. Once you make your investments and claim your deductions, your cannot change your tax plan during the financial year.
|
New Tax Regime Advantages and Disadvantages
|
Advantages
|
Disadvantages
|
|
1. Lower tax rates: The new tax regime offers lower tax rates as compared to the old tax regime. This can help you save money and increase your in-hand income.
|
1. Fewer exemptions and deductions: The new tax regime does not offer as many exemptions or deductions. Only a few are offered, like the standard deduction, leave travel concession, and tax-free withdrawals from Provident Fund.
|
|
2. Simpler tax structure: The new tax regime has a simpler tax structure as compared to the old tax regime. You no longer have to worry about claiming various deductions and exemptions.
|
2. Limited tax planning: The new tax regime offers limited tax planning opportunities as compared to the old tax regime. This can be a disadvantage if you want to save more on your taxes.
|
Which Tax Regime to Choose?
Under the new tax regime, tax rates have been rationalised into five tax slabs ranging from 0% to 30%. The total tax you pay after or without deductions from your annual income, health insurance, etc., also differs based on your source of income. As a salaried individual who uses all their deductions, you may benefit from the new regime slab. Senior citizens, on the other hand, may opt for the new regime. The tax exemption limit also depends on your income slab, and you should choose your preferred regime based on your individual tax calculation.
Conclusion
Choosing between the old and new tax regimes completely depends on your preference. The old regime offers more exemptions and deductions, allowing for greater tax planning and savings. However, it has a complex structure and limited flexibility. The new regime provides lower tax rates and a simpler structure but has fewer exemptions and limited tax planning opportunities. Individuals should carefully assess their income, deductions, and tax liabilities to determine which regime is more beneficial for them. Consulting with a tax professional can help make an informed decision based on individual tax calculations.
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Frequently Asked Questions
1. What are the new income tax slabs under the new regime of 2023-24?
The new tax regime has five tax slab rates from 0% to 30%, with a basic exemption limit of ₹3 lakh. It has a maximum tax rate of 30% for income over ₹15 lakh. There's also a tax rebate on income up to ₹7 lakh under section 87A.
2. Should I opt for the old tax regime or the new one if I earn more than ₹15 lakhs?
For high-income individuals, the tax liability will mainly differ based on whether they can claim any exemptions and deductions or not, as the tax rate is the same. If your deductions exceed ₹4 lakhs, the old tax regime might be beneficial for you. However, if your deductions are lower than that, you might save more with the new regime.
3. What is the difference between new and old tax slabs?
The new tax regime has lower tax rates but fewer deductions and exemptions compared to the old tax regime. The old tax regime has more deductions and exemptions but higher tax rates. Calculate income tax liabilities for yourself using an income tax calculator and talk to a professional before choosing a regime. Here is another blog that walks you through the differences in detail.
4. Which tax regime is better for a person earning less than ₹6 LPA?
For a person earning less than ₹6 LPA, the new regime is better as the tax rate is lower compared to the old tax regime.
