NEW TAX REGIME OR OLD TAX REGIME

Which to choose?

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The Finance Minister has made several announcements in Budget 2023 regarding personal income tax that will impact tax liability of several individuals be it salaried class or business. Some of them include an increase in the tax rebate limit, an increase in basic exemption, an increase in the tax-exempt leave encashment limit, and so on. In addition, the benefit of the standard deduction has been extended to salaried and pensioner taxpayers, and the highest surcharge rate has been reduced under the new tax regime.

Let’s first take a look at the major changes that will affect individual taxation:

New Tax Regime

Increase of Tax Exemption Limit/ Slab to Rs. 3 lakh

The tax exemption limit (slab) in the new tax regime is raised to Rs. 3 lakh. This modification will provide significant relief to all taxpayers under the new regime. The new regime’s personal income tax structure has six income slabs as below,

Income Range	Income Tax Rate
Upto Rs 3 L	Nil
Rs 3 L - 6 L	5% on income which exceeds Rs 3 lakhs
Rs 6 L - 9 L	Rs 15,000 + 10% on income more than Rs 6 lakhs
Rs 9 L - 12 L	Rs 45,000 + 15% on income more than Rs 9 lakhs
Rs 12 L - 15 L	Rs 90,000 + 20% on income more than Rs 12 lakhs
Above Rs 15 L	Rs 1,50,000 + 30% on income more than Rs 15 lakhs

Old Tax Regime

Here are the tax slabs under old regime for your ready reference

(Individual other than Senior Citizen and Super Senior Citizen)

Income Range	Income Tax Rate
Upto Rs 2.50 L	Nil
Rs 2.50 L – Rs 5 L	5% on income which exceeds Rs 2.50 lakhs
Rs 5 L – Rs 10 L	Rs 12,500 + 20% on income which exceeds Rs 5 lakhs
Rs 10 L +	Rs 1,12,500 + 30% on income which exceeds Rs 10 lakhs

· Benefit of Standard Deduction

The Budget 2023 has extended the benefit of the standard deduction of Rs. 50,000 to salaried individuals and the deduction from family pension up to Rs. 15,000 for taxpayers under the new tax regime also.

· Reduction in Highest rate of Surcharge

To provide relief to tax relief to high net worth individuals, the highest surcharge rate in the new tax regime is reduced from 37% to 25%, resulting in a reduction of the maximum marginal rate (personal income tax rate) from 42% to 39%.

· Increased limit for leave encashment exemption

The leave encashment for non government employees was exempt upto Rs. 3 lakhs. In Budget 2023, it is this exemption is raised to Rs. 25 lakh owing to the general increase in income from salary.

· New Tax Regime to be made Default Tax Regime

The Finance Minister has announced that the income tax regime introduced in 2020 will be implemented as the default tax regime. However, taxpayers will have the option to continue receiving the benefits of the previous tax regime.

The major point that concerns a tax payer is whether he/she should opt for old tax regime or new tax regime after 1st April 2023.

The below table will make the selection simpler for you. If your Deduction and Exemption Under various Section, like Sec 80C, Sec D, Sec 80TTB, Sec 80G, etc. are greater than the amounts mentioned below, then the Old regime is better for you, otherwise the new tax regime will be beneficial for you.

You can download the tax calculator here to help you decide which regime to choose.

Income Tax Calculator F Y 2023-24

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Income Tax Calculator F Y 2022-23

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