The concept of the 'New Tax Regime' was first introduced in the Union Budget of 2020. It mainly aimed at simplifying taxation for individuals. Ever since its introduction, the new regime has undergone various amendments to offer additional benefits to small taxpayers. The latest budget of 2023 has further amended the new regime tax rates and other related provisions to amplify its advantages to a wider audience.
As a result, the new tax regime is now the default option. But you still have the choice to switch it back to the old one. However, before deciding, it is important to evaluate the potential benefits of the new regime.
During her budget speech on February 1, 2023, FM Nirmala Sitharaman revealed that the new tax regime will become the default option starting from FY 2023-24. However, the employees can opt for the old tax regime by informing the employer about their choice.
Depending on the employees’ chosen tax regime, the employer will deduct the TDS at the applicable rate from their salary. If the employees fail to register their choice, the new regime will be considered as default and the employer will deduct tax from their salary according to the new regime's tax rates.
Starting from FY 2023-24, all individuals (including senior and super senior citizens) will be subject to the below-mentioned tax rates under the new regime.
Although the new tax regime does not offer several deductions and exemptions that are otherwise available under the old regime, the Budget 2023 has amended a few provisions that come with a range of benefits, including:
However, it is important to note that after combining the basic exemption limit, standard deduction and rebate under Section 87A, you can enjoy a tax-free income of up to ₹7.5 lakhs under the new tax regime.
The new tax regime is beneficial to individuals earning up to ₹7.5 lakhs per year. However, if the annual income exceeds ₹7.5 lakhs, there are additional factors like eligible deductions and exemptions that need to be considered.
This is because deductible items such as life insurance premiums, medical insurance premiums, children's tuition fees, etc., can only be claimed under the old regime. Thus the right choice of tax regime differs from case to case.
If you have made substantial tax-saving investments, switching back to the old tax regime could be more advantageous for you. However, if your investments are not significant, it is recommended to stick with the default new tax regime to save more.
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The new tax regime benefits if your income is up to ₹7.5 lakhs. If your income is over this amount, the choice mainly depends on your tax-saving investments. For instance, if your annual taxable income is ₹12 lakhs and your tax-saving investment is up to ₹3 lakhs, then the new tax regime is good for you. Else, the old tax regime will be more advantageous to you.
Filing your ITR and paying income tax under the new regime can be advantageous if you haven't made significant tax-saving investments. On the other hand, if you have made substantial investments that qualify for deductions and exemptions, you may find the old tax regime more beneficial. However, if your income is ₹7.5 lakhs or less, you may still benefit more from the new tax regime, regardless of your investments.
