New v/s Old Tax Regime Comparison: Which Tax Regime to Pick?

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Income

F.Y. 2021-22
Old regime
F.Y. 2021-22
New regime
F.Y. 2022-23
Old regime
F.Y. 2022-23
New regime
Income from Salaries
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Amount
Amount
Amount
Less: Allowances & Exemptions
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Amount
Amount
Amount
Income from Business
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Amount
Amount
Amount
Income from House Property
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Amount
Amount
Amount
Income from Other Sources
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Amount
Amount
Amount

Deductions

F.Y. 2021-22
Old regime
F.Y. 2021-22
New regime
F.Y. 2022-23
Old regime
F.Y. 2022-23
New regime
Basic Deductions (80C)
Amount
Amount
Amount
Amount
Medical Insurance Premium (80D)
Amount
Amount
Amount
Amount
Interest from Savings (80TTA)
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Amount
Amount
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Other Deductions
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Standard Deduction / Allowance
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Amount

Budget Impact

F.Y. 2021-22
Old regime
F.Y. 2021-22
New regime
F.Y. 2022-23
Old regime
F.Y. 2022-23
New regime
Basic Tax
Amount
Amount
Amount
Amount
Rebate u/s 87a
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Amount
Amount
Amount
Surcharge
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Amount
Amount
Amount
Education Cess
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Amount
Amount
Amount
Total Tax Liability
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Amount
Amount
Amount
Impact of Budget 2022 compared to F.Y. 2021-22
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Contents

What is the New Tax Regime?

A new tax slab has been introduced in Budget 2020 that got effective from 1 April 2020. This new income tax slab offered lower tax rates but deductions and exemptions will not be available under the new regime except deduction u/s 80CCD(2). It allows you to lower your tax liability subject to certain conditions and is optional.

Comparison Of Old v/s New Tax regime Slab Rates for FY 2021-22, FY 2022-23 for FY 2022-23 and, FY 2023-24

OldTax regime and New Tax regime Slab Rates for FY 2022-23

Income Tax Slab New Tax Regime Old Tax Regime
Upto Rs 2.5 Lakhs Exempt Exempt
Rs 2.5- Rs 5 Lakhs 5% 5%
Rs 5- Rs 7.5 Lakhs 10% 20%
Rs 7.5 -Rs 10 Lakhs 15% 20%
Rs 10 - Rs 12.5 Lakhs 20% 30%
Rs 12.5 - Rs 15 Lakhs 25% 30%
Above Rs 15 Lakhs 30% 30%

Note: If the net taxable income(Gross Total Income - Chapter VIA deductions) of a salaried individual is up to INR 5 lakhs, they can enjoy the rebate under Section 87A of the Income Tax Act, 1961 under both the regimes. A rebate of INR 12,500 or the actual tax liability, whichever is lower would be allowed thereby making the tax liability zero.

OldTax regime and New Tax regime Slab Rates for FY 2023-24

There are no Changes in the Old Tax Regime however the Union Budget 2023-24 makes some changes in the New Tax Regime Slab Rates for FY 2023-24 and onwards. Now, The basic exemption limit has been raised to Rs 3 lakh from Rs 2.5 lakh to make the new tax regime more attractive. Also, the the No. of slabs reduced from 7 to 6 in the new tax regime. The income tax slab rates for FY 2023-24 (AY 2024-25) are as follows:

Old Regime Income Tax Slab
Up to Rs 2,50,000 NIL
Rs 2,50,001 - Rs 5,00,000 5% (tax rebate u/s 87A is available)
Rs 5,00,001 - Rs 10,00,000 20%
Above Rs 10,00,000 30%

New Regime Income Tax Slab

Tax Slab Tax Rate
Upto Rs 3,00,000 Nil
Rs. 3,00,001-6,00,000 5%
Rs. 6,00,001-9,00,000 10%
Rs. 9,00,001-12,00,000 15%
Rs. 12,00,01-15,00,000 20%
Above Rs. 15,00,001 30%

A rebate under Section 87A has been enhanced under the new tax regime; from the current income level of Rs.5 lakh to Rs.7 lakh. Thus, individuals opting for the new income tax regime and having an income up to Rs.7 lakh will not pay any taxes.

Why has the Government introduced the new tax regime?

For a long time, it was demanded to increase the tax slabs and lower the tax rates. The Government thus introduced the new tax regime to give taxpayers the option to pay the lowest tax on their incomes. Since the new regime is optional, taxpayers can compare and choose the regime which is more beneficial for them in lowering their tax outgo.Under The new tax regime approximately 70 out of 100 exemptions are not available to make tax filing simple and easier for taxpayers so that they can calculate their tax liability themselves in an easy manner.

Which are the exemptions/deductions unavailable under the new tax regime?

The budget has removed 70 of the available 100 exemptions. The following exemptions and deductions are some of the most important ones which would not be available if the new tax slab is chosen for tax calculation –

  • Standard deduction of INR 50,000 from salary income under Section 16
  • House Rent Allowance under Section 10 (13A)
  • Leave Travel Allowance under Section 10(5)
  • Allowances under Section 10(14)
  • Food coupons and other tax-free allowances and perquisites
  • Deductions under Chapter VI A of the Income Tax Act like Section 80C, 80D, 80TTA, etc.
  • Deduction for home loan interest paid for self-owned house property under Sections 24 (b) and Section 80EEA

For more details pls check here. https://tax2win.in/guide/income-tax-slab-rates-updated

Which are the exemptions and deductions still available under the new tax regime?

The following deductions and exemptions are still available under the new tax regime –

  • Employer’s contribution to the NPS for up to 10% of employee’s salary under Section 80CCD (2) [ 14% in case of Govt employee]
  • Standard deduction of 30% from net rental income if house property is let out.
  • Home loan interest paid can be deducted from the rental income of a house property. However, loss from the House Property head can not be set off from any other head of income.
  • Transport allowance exemption will be available to divyang employees to meet the day-to-day travel expenses from the workplace to home.
  • Conveyance allowance will be allowed to meet the expenditure on the conveyance for the purpose of performing the official duty.
  • Allowances granted will be allowed to meet the cost of traveling on tour or on transfer to the employees.
  • Daily allowance granted for day-to-day ordinary expenses in case of absence from his / her normal place of duty.
  • Standard deduction of INR 50,000 from salary income under Section 16 as introduced by Budget 2023

Which tax slab is better?

Ever since the new tax regime was proposed, many are debating as to which tax regime is better, the old one with deductions or the new one without them? The answer is relative. One tax regime cannot be universally beneficial for all. Your income, its type, available deductions, and exemptions determine which tax regime would give you better tax benefits. You should calculate your tax liability using both regimes and the regime which gives you the lowest tax liability should be chosen depending on your requirement.
Here are some calculations showing you the tax liability under both the tax slabs for different types of incomes –

Salary Income of INR 12 lakhs for a salaried employee

Particulars FY 2023-24 FY 2022-23
Old Regime New Regime Old Regime New Regime
Gross Salary 12,00,000 12,00,000 12,00,000 12,00,000
Less: HRA exemption 2,00,000 NA 2,00,000 NA
Less: LTA exemption 50,000 NA 50,000 NA
Less: Standard deduction 50,000 50,000 50,000 NA
Less: Section 80C deductions 1,50,000 NA 1,50,000 NA
Less: Section 80D deductions for self 25,000 NA 25,000 NA
Less: Section 80D deduction for senior citizen parents 50,000 NA 50,000 NA
Less: Other deductions 10,000 NA 10,000 NA
Taxable Income 6,65,000 11,50,000 6,65,000 12,00,000
Tax Payable including cess (considering age is less than 60) 47,320 85,800 47,320 1,19,600
Remark Old regime is beneficial Old regime is beneficial

Let us understand with another example :

Particulars FY 2023-24 FY 2022-23
Old Regime New Regime Old Regime New Regime
Gross Salary 12,00,000 12,00,000 12,00,000 12,00,000
Less: Standard deduction 50,000 NA 50,000 NA
Less: 80C deductions 50,000 50,000 50,000 NA
Taxable Income 11,00,000 11,50,000 11,00,000 12,00,000
Tax Payable including cess(considering age is less than 60) 1,48,200 85,600 1,48,200 1,19,600
Remark New regime is more beneficial New regime is more beneficial

So, a salaried employee can benefit from the old tax regime by claiming exemptions/ deductions. In case the taxpayer wants to claim more exemptions/ deductions then he should opt for the old tax regime subject to other conditions.

In the second example, since the exemptions/ deductions available to him were lower as compared to the previous example, it was more beneficial for him in opting for the new tax regime. Further, the decision of a suitable tax regime depends on case to case.

Some more examples showing taxability at different income levels:
Salary Income: Rs.5,00,000 FY 2022-23

Particulars Old Regime New Regime
Gross Income 500,000 500,000
Less : Std. Ded. 50,000 -
80C,80D, etc. Zero -
HRA Zero -
LTA Zero -
Net Taxable Income 450,000 500,000
Tax - -

Note: There is NO impact on tax payments because of rebate u/s 87A.

Salary Income: Rs.5,00,000 FY 2023-24

Particulars Old Regime New Regime
Gross Income 500,000 500,000
Less: Std. Ded. 50,000 50,000
80C,80D, etc. Zero -
HRA Zero -
LTA Zero -
Net Taxable Income 450,000 450,000
Tax - -

Note: There is NO impact on tax payments because of rebate u/s 87A.

Salary Income: Rs.7,00,000 FY 2022-23

Particulars Old Regime New Regime
Gross Income 700,000 700,000
Less: Std. Ded. 50,000 -
80C,80D, etc. 150,000 -
HRA 50,000 -
LTA Zero -
Net Taxable Income 450,000 700,000
Tax 0 33,800
Note: There is NO impact on tax payments under the old regime because of rebate u/s 87A. However Tax is payable under the new regime therefore the Old regime is more beneficial.

Salary Income: Rs.7,00,000 FY 2023-24

Particulars Old Regime New Regime
Gross Income 700,000 700,000
Less : Std. Ded. 50,000 50,000
80C,80D, etc. 150,000 -
HRA 50,000 -
LTA Zero -
Net Taxable Income 450,000 650,000
Tax 0 0
Note: There are tax payments under the old regime due to rebate u/s 87A and also under new regime also due to rebate u/s 87A as Introduced by Budget 2023 which says Income upto 7 lac is not taxable under the new Regime.

Salary Income: Rs.7,00,000 FY 2022-23

Particulars Old Regime New Regime
Gross Income 700,000 700,000
Less : Std. Ded. 50,000 -
80C,80D, etc. - -
HRA - -
LTA - -
Net Taxable Income 650,000 700,000
Tax 44,200 33,800
Note: New Tax Regime is more beneficial.

Salary Income: Rs.7,00,000 FY 2023-24

Particulars Old Regime New Regime
Gross Income 700,000 700,000
Less : Std. Ded. 50,000 50,000
80C,80D, etc. - -
HRA - -
LTA - -
Net Taxable Income 650,000 650,000
Tax 44,200 0
Note: Tax payable under old regime is Rs 44,200 however there is tax payments under New regime because of rebate u/s 87A as Introduced by Budget 2023 which says Income upto 7 lac is not taxable under the new Regime.

Salary Income: Rs.8,00,000 FY 2022-23

Particulars Old Regime New Regime
Gross Income 800,000 800,000
Less : Std. Ded. 50,000 -
80C,80D, etc. 150,000 -
HRA 50,000 -
LTA Zero -
Net Taxable Income 550,000 800,000
Tax 23,400 46,800
Old Tax Regime saves more tax.

Salary Income: Rs.8,00,000 FY 2023-24

Particulars Old Regime New Regime
Gross Income 800,000 800,000
Less : Std. Ded. 50,000 50,000
80C,80D, etc. 150,000 -
HRA 50,000 -
LTA Zero -
Net Taxable Income 550,000 750,000
Tax 23,400 31,200
Old Tax Regime saves more tax.

Salary Income: Rs.15,00,000 FY 2022-23

Particulars Old Regime New Regime
Gross Income 1,500,000 1,500,000
Less : Std. Ded. 50,000 -
80C,80D, etc. 150,000 -
HRA 75,000 -
LTA 20,000 -
Net Taxable Income 1,205,000 1,500,000
Tax 180,960 195,000
Old Tax Regime saves more tax.

Salary Income: Rs.15,00,000 FY 2023-24

Particulars Old Regime New Regime
Gross Income 1,500,000 1,500,000
Less : Std. Ded. 50,000 50,000
80C,80D, etc. 150,000 -
HRA 75,000 -
LTA 20,000 -
Net Taxable Income 1,205,000 1,450,000
Tax 180,960 145,600
New Tax Regime saves more tax.

Salary Income : Rs.20,00,000 FY 2022-23

Particulars Old Regime New Regime
Gross Income 2,000,000 2,000,000
Less : Std. Ded. 50,000 -
80C,80D, etc. 150,000 -
HRA 75,000 -
LTA 20,000 -
Net Taxable Income 1,705,000 2,000,000
Tax 336,960 351,000
Old Tax Regime saves more tax.

Salary Income : Rs.20,00,000 FY 2023-24

Old Regime New Regime
Gross Income 2,000,000 2,000,000
Less : Std. Ded. 50,000 50,000
80C,80D, etc. 150,000 -
HRA 75,000 -
LTA 20,000 -
Net Taxable Income 1,705,000 1,950,000
Tax 336,960 296,400
New Tax Regime saves more tax.

Is there a situation of paying the same tax under both tax regimes?

Let's get a brief over some of the indifferent points between the old and new tax regimes:
For FY 2022-23

Gross Income Deductions and exemptions including Standard deduction Tax under the old tax regime* Tax under the new tax regime*
INR 8,00,000 INR 1,38,000 INR 47,000 INR 47,000
INR 10,00,000 INR 1,88,000 INR 78,000 INR 78,000
INR 12,00,000 INR 1,91,000 INR 1,20,000 INR 1,20,000
INR 15,00,000 INR 2,50,000 INR 1,95,000 INR 1,95,000

*Tax amount has been rounded off to the nearest thousands
For FY 2023-24

Gross Annual Income Deductions and exemptions including Standard deduction Tax under old regime Tax under New tax regime*
INR 8,00,000 INR 2,12,500 INR 31,000 INR 31,000
INR 10,00,000 INR 3,00,000 INR 55,000 INR 55,000
INR 12,00,000 INR 3,50,000 INR 86,000 INR 86,000
INR 15,00,000 INR 4,08,000 INR 1,46,000 INR 1,46,000

*Tax amount has been rounded off to the nearest thousands

In the cases mentioned above, the taxpayer will be indifferent to both schemes. Both schemes will result in approximately the same amount of tax.

What are the benefits or disadvantages of opting for both tax regimes?

The various benefits or disadvantages of the old and new tax regimes include:-

Benefits Disadvantages
OLD TAX REGIME
Option to avail around 70 exemptions and deductions under the Income Tax Act Investment only in specified options were required to claim the tax benefit.
Practice to submit false disclosures for investment proofs is prevalent
NEW TAX REGIME
Tax Rates Reduced Not attractive to those who were already investing and have binding premiums
No major tax saving options given, increasing cash flow in hands of taxpayer

The bottom line
The bottom line comes down to numbers. Before deciding on which regime is suitable for you, you need to calculate your tax liability under both regimes with and without deductions and exemptions. The regime which gives you the lowest tax liability would be better depending on your requirements. Mrs. Sitharaman has given you the choice of reducing your tax liability in any way possible and so, the onus is on you to find out which regime works better for you.

FAQs on the Old Vs New Tax Regime

Q- Can I switch between the old and new tax regime?

Yes, a salaried individual can make a choice every year as to which tax regime should be chosen. There is no compulsion if one scheme is selected for a year then it should adhere every year. Taxpayers can switch amongst the schemes yearly.

Q- Is the new tax regime more beneficial?

New tax regime is more beneficial, particularly for those who have not invested and are not looking forward to making an investment in tax saving options eligible under the old scheme. This option is more lucrative for new joiners or senior citizens willing to have more liquidity in hands compared to investments.

Q- Is the HRA benefit available under the new tax regime?

House Rent Allowance or HRA exemption is not available under the new tax regime pronounced in Budget 2020.

Q- How to calculate tax for the new regime?

Tax under the new regime can be calculated as per the income tax slabs rates prescribed or with the help of an income tax calculator.

Q- Whether rental income earners should shift to the new tax regime?

The choice of opting for the new tax regime shall depend upon your willingness to make tax saving investments. In case you are a rental income earner and you are not looking forward to making any tax-deductible contributions then you should preferably opt for the new tax regime. Still, it would be suggested to take a more informed decision by calculating your tax liability under both regimes.



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