In Budget 2023, Government of India introduced new tax regime as a default regime for the taxpayer but the old tax regime is continued to exists. It created a lot of confusion among taxpayers regarding the choice between the old and new tax regime Whether taxpayer need to choose old regime or new regime?
Under new tax regime, taxpayer need not to pay any taxes upto income of 7.5 Lac (including 50,000 standard deductions for salaried employees) but under old tax regime, tax exemption limit was INR 5,00,000. However, for new tax regime no other deduction will be available for taxpayer unlike in old tax regime.
There are various deductions can be claimed under old tax regime that are not available under new tax regime. Few of them are listed below-
- House Rent Allowance
- Leave travel allowance
- Professional Tax
- Entertainment allowance
- Other special allowance
- Minor child Income allowance
- Deduction for interest on home loan for self-occupied property
- Deduction under section 80C like Life insurance premium, Investment in ELSS, Fixed deposit, NSC etc upto 1.5 lac.
- Deduction under section 80TTA and 80TTB
- Deduction under section 80D for health insurance for your parents and family and many more
Tax Slabs
| Income Slab | Old Tax Regime | New Tax Regime (From 1st April 2023) |
| ₹0 – ₹2,50,000 | – | – |
| ₹2,50,000 – ₹3,00,000 | 5% | – |
| ₹3,00,000 – ₹5,00,000 | 5% | 5% |
| ₹5,00,000 – ₹6,00,000 | 20% | 5% |
| ₹6,00,000 – ₹9,00,000 | 20% | 10% |
| ₹9,00,000 – ₹10,00,000 | 20% | 15% |
| ₹10,00,000 – ₹12,00,000 | 30% | 15% |
| ₹12,00,000 – ₹15,00,000 | 30% | 20% |
| >₹15,00,000 | 30% | 30% |
Example:
Let’s suppose, person A is a salaried employee and his total income is 15 lac per annum. His Salary structure is as follows:
Basic – 7,50,000, HRA – 3,75,000 and Special Allowances -3,75,000
He is paying rent of INR 40,000 per month residing in Metro cities. He is also invested INR 1.5 lac in under section 80C. Also, he has taken home loan of 35 lac on which he is paying interest of Rs 2 lac per annum. He has taken health insurance for his family and parents of INR 25,000 and INR 30,000 respectively.
Computation of Income under New tax regime vs Old Tax regime
| Particular | New Tax Regime | Old Tax Regime |
| Total Salary | 15,00,000 | 15,00,000 |
| Less: Standard Deduction | (50,000) | (50,000) |
| Less: Investment under section 80C | – | (1,50,000) |
| Less: Premium paid for health insurance | – | (55,000) |
| Less: Interest on home loan under section 24 (b) | – | (2,00,000) |
| Less: HRA exemption | – | (3,75,000) |
| Total Taxable Income | 14,50,000 | 6,70,000 |
| Tax on Total Income | 1,45,600 | 48,360 |
Conclusion
To opt the tax regime which one is better, taxpayer need to do cost benefit analysis. If the taxpayer does not have any tax saving investments, HRA and no home loan interest being paid by the taxpayer then new tax regime is better. Especially for those taxpayers whose total income is below 7 lac can opt for new regime. However, if taxpayer fall into a higher income bracket and having investments, home loan etc, then he should opt for old tax regime.
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