With the introduction of the new Budget 2023 this year, many of us are still confused about the new tax slab, isn’t it? The government, in its 2023 Budget, has implemented several tax incentives to promote the adoption of the new tax regime. Despite the new regime becoming the default option, the old tax regime still persists. However, to choose the right one for filling your ITR returns, it is a must to clear the basics of what actually seems better: new vs old tax regime. Let us take a look:
New Income Tax Regime
The all-new income tax regime, introduced in Budget 2023, offers lower tax rates for individuals and Hindu Undivided Families (HUFs) with certain conditions.
New tax regime for FY 2023-24 (AY 2024-25) in India:
- The new tax regime is the default for individuals and HUFs from FY 2023-24 unless they opt for the old regime by filing a declaration under Section 115BAC(5).
- The new regime offers lower tax rates for some income slabs but removes most deductions/exemptions from the old regime.
- The new tax regime has seven income slabs with rates ranging from 0% to 30%.
- Surcharge rates and health/education cess remain the same as the old regime for all income slabs.
New Income Tax Slab
Under the new income tax regime, the slab rates for the fiscal year 2023-24 (assessment year 2024-25) are as follows:
Tax Slabs for Different Age Groups
- For individuals below 60 years of age at any point during the preceding year, whether they are residents or non-residents:
| Income Tax Slab | Income Tax Rate |
| Up to ₹2,50,000 | Nil |
| ₹2,50,001 – ₹5,00,000 | 5% above ₹2,50,000 |
| ₹5,00,001 – ₹7,50,000 | ₹12,500 + 10% above ₹5,00,000 |
| ₹7,50,001 – ₹10,00,000 | ₹37,500 + 15% above ₹7,50,000 |
| ₹10,00,001 – ₹12,50,000 | ₹75,000 + 20% above ₹10,00,000 |
| ₹12,50,001 – ₹15,00,000 | ₹1,25,000 + 25% above ₹12,50,000 |
| Above ₹15,00,000 | ₹1,87,500 + 30% above ₹15,00,000 |
- For individuals aged 60 years or more but less than 80 years at any time during the preceding year, whether they are residents or non-residents:
| Income Tax Slab | Income Tax Rate |
| Up to ₹2,50,000 | Nil |
| ₹2,50,001 – ₹5,00,000 | 5% above ₹2,50,000 |
| ₹5,00,001 – ₹7,50,000 | ₹12,500 + 10% above ₹5,00,000 |
| ₹7,50,001 – ₹10,00,000 | ₹37,500 + 15% above ₹7,50,000 |
| ₹10,00,001 – ₹12,50,000 | ₹75,000 + 20% above ₹10,00,000 |
| ₹12,50,001 – ₹15,00,000 | ₹1,25,000 + 25% above ₹12,50,000 |
| Above ₹15,00,000 | ₹1,87,500 + 30% above ₹15,00,000 |
- For any individual aged 80 years or more at any point during the preceding year, whether they are a resident or non-resident:
| Income Tax Slab | Income Tax Rate |
| Up to ₹2,50,000 | Nil |
| ₹2,50,001 – ₹5,00,000 | 5% above ₹2,50,000 |
| ₹5,00,001 – ₹7,50,000 | ₹12,500 + 10% above ₹5,00,000 |
| ₹7,50,001 – ₹10,00,000 | ₹37,500 + 15% above ₹7,50,000 |
| ₹10,00,001 – ₹12,50,000 | ₹75,000 + 20% above ₹10,00,000 |
| ₹12,50,001 – ₹15,00,000 | ₹1,25,000 + 25% above ₹12,50,000 |
| Above ₹15,00,000 | ₹1,87,500 + 30% above ₹15,00,000 |
New Income Tax Regime Benefits
The new income tax regime benefits those with low income, offering lower tax rates and simpler compliance. Taxpayers don’t need to maintain proof of various deductions and exemptions. A tax rebate under Section 87A is available for those with taxable income up to ₹7,00,000, reducing their tax liability to zero.
However, the new tax regime has some drawbacks:
- Loss of various deductions and exemptions available in the old tax regime (e.g., Section 80C, Section 80D, Section 24)
- There is no allowance for taxpayers to set off or carry forward losses under any head of income
Old Income Tax Regime
The old tax regime refers to the tax system that was in place before the introduction of the new regime. This system offered around 70 exclusions and deductions, including HRA and LTA, aimed at reducing taxable income and minimising tax payments.
One significant deduction under the old tax regime is Section 80C, allowing a reduction in taxable income by up to Rs. 1.5 lakh. Taxpayers have the flexibility to choose between the existing and new tax regimes.
Under the old regime, taxpayers could avail of various deductions and exemptions outlined in the Income Tax Act 1961, such as Section 80C, Section 80D, Section 24, and more.
Old Income Tax Slab
- For individuals below 60 years of age at any point during the preceding year, whether they are residents or non-residents:
Old Tax Slabs- Less than 60 years
| Income Tax Slab | Income Tax Rate |
| Up to ₹ 2,50,000 | Nil |
| ₹ 2,50,001 – ₹ 5,00,000 | 5% above ₹ 2,50,000 |
| ₹ 5,00,001 – ₹ 10,00,000 | ₹ 12,500 + 20% above ₹ 5,00,000 |
| Above ₹ 10,00,000 | ₹ 1,12,500 + 30% above ₹ 10,00,000 |
- For individuals aged 60 years or more but less than 80 years at any time during the preceding year, whether they are residents or non-residents:
Old Tax Slabs 60 years or more but less than 80 years
| Income Tax Slab | Income Tax Rate |
| Up to ₹ 3,00,000 | Nil |
| ₹ 3,00,001 – ₹ 5,00,000 | 5% above ₹ 3,00,000 |
| ₹ 5,00,001 – ₹ 10,00,000 | ₹ 10,000 + 20% above ₹ 5,00,000 |
| Above ₹ 10,00,000 | ₹ 1,10,000 + 30% above ₹ 10,00,000 |
- For any individual aged 80 years or more at any point during the preceding year, whether they are a resident or non-resident:
Old Tax Slab: 80 years or more
| Income Tax Slab | Income Tax Rate |
| Up to ₹ 5,00,000 | Nil |
| ₹ 5,00,001 – ₹ 10,00,000 | 20% above ₹ 5,00,000 |
| Above ₹ 10,00,000 | ₹ 1,00,000 + 30% above ₹ 10,00,000 |
Old Tax Regime Benefits- Standard Deductions Allowed
The advantages of the old tax regime were particularly beneficial for individuals with higher incomes who could leverage numerous deductions and exemptions. Noteworthy deductions included HRA, LTA, and the significant Section 80C, allowing a reduction in taxable income by up to Rs. 1.5 lakh. Additionally, taxpayers had the flexibility to choose between the old and new tax regimes based on their financial circumstances.
List of Some Exemptions and Deductions in Old Tax Regime Slabs:
- Leave Travel Allowance
- House Rent Allowance
- Salaried individuals enjoyed a standard deduction of Rs 50,000.
- Deductions under Section 80TTA/80TTB (on interest from savings account deposits)
- Entertainment allowance deduction and professional tax (applicable to government employees)
- Tax relief on interest paid on a home loan for self-occupied or vacant property u/s 24
- Deduction of Rs 15,000 permitted from family pension under clause (ii a) (Section 57)
- Tax-saving investment deductions under Chapter VI-A (80C, 80D, 80E, 80CCC, 80CCD, 80D, 80DD, 80DDB, 80EE, 80EEA, 80EEB, 80G, 80GG, 80GGA, 80GGC, 80IA, 80-IAB, 80-IAC, 80-IB, 80-IBA, etc.)—excluding Section 80CCD(2) (employer’s contribution to NPS) and Section 80JJA. These options include ELSS, NPS, PPF, and tax breaks on insurance premiums.
| Section | Purpose |
| 80C | To encourage savings and investments in various instruments, such as ELSS, PPF, EPF, LIC, NSC, etc. |
| 80D | To promote health insurance and medical expenses for self, family, and dependent parents |
| 80E | To support higher education by allowing interest on education loan |
| 80CCC | To provide pension benefits by allowing contributions to pension funds |
| 80CCD | To facilitate retirement planning by allowing contributions to NPS and Atal Pension Yojana |
| 80DD | To assist disabled dependents by allowing expenses on their medical treatment, training, and rehabilitation |
| 80DDB | To help patients suffering from specified diseases by allowing expenses on their treatment |
| 80EE | To boost home ownership by allowing interest on home loan for first-time buyers |
| 80EEA | To promote affordable housing by allowing additional interest on home loan for first-time buyers |
| 80EEB | To encourage electric vehicles by allowing interest on loans for purchase of electric vehicles |
| 80G | To foster social welfare by allowing donations to specified funds and charitable institutions |
| 80GG | To provide relief to taxpayers who do not receive HRA by allowing rent paid |
| 80GGA | To stimulate scientific research and rural development by allowing donations to specified institutions and associations |
| 80GGC | To support political parties by allowing contributions to them |
| 80IA | To incentivize infrastructure development by allowing profits from specified businesses |
| 80-IAB | To facilitate special economic zones by allowing profits from developing or operating them |
| 80-IAC | To nurture startups by allowing profits from eligible businesses |
| 80-IB | To reward industrial growth by allowing profits from specified industries |
| 80-IBA | To augment affordable housing by allowing profits from developing and building such projects |
New vs Old Tax Regime: Which is Better
The new and old tax regimes in India offer distinct approaches to calculating income tax liability for individuals and Hindu Undivided Families (HUFs). Introduced in Budget 2023, the new tax regime provides lower tax rates but with fewer deductions, while the old tax regime allows more deductions and exemptions with higher tax rates. Choosing between the two depends on individual income levels and tax-saving preferences.
New vs Old Tax Regime: Key Differences
- Basic Exemption Limit:
- New Tax Regime: Increased to Rs 3 lakh from Rs 2.5 lakh in the old tax regime.
- Individuals with income up to Rs 3 lakh pay no income tax under the new regime.
- Number of Tax Slabs:
- New Tax Regime: Reduced from six to five.
- Tax rates for new slabs: 0%, 5%, 10%, 15%, 20%, and 30%.
- Tax Rebate under Section 87A:
- New Tax Regime: Increased to a taxable income level of Rs 7 lakh from Rs 5 lakh in the old regime.
- No income tax for taxable income below Rs 7 lakh in the new regime.
- Standard Deduction and Family Pension Deduction:
- New Tax Regime: Introduced a standard deduction of Rs 50,000 for salaried individuals and pensioners.
- Deduction of Rs 15,000 or 1/3rd of pension, whichever is lower, for family pension recipients.
When you’re picking between the two tax systems, it’s crucial to think about the tax breaks and deductions you can get under the old system. Subtract all the exemptions and deductions you’re eligible for to find your net taxable income. Then, figure out the tax you owe based on this income under the old system. Now, you can compare it with the tax you’d pay under the new system. The smart move is to go for the regime that gives you a lower tax bill.
- Go for the new tax regime if your total deductions are less than 1.5 lakhs.
- If your income tax deductions are more than 3.75 lakhs, it is better to stick with the old tax regime.
- If your income tax deductions are between 1.5 lakhs and 3.75 lakhs, the choice of new tax vs old tax regime will depend on how much your annual income is.
Note: Make sure to let your employer know about your choice so they can deduct the right amount of Tax Deducted at Source (TDS) from your salary.
FAQs| New Tax vs Old Tax Regime
The choice between the old and new tax regimes depends on factors like your income level, deductions, and exemptions. Generally, the new tax regime is more suitable for those with lower incomes, while the old regime is preferable for higher-income individuals who can claim various deductions and exemptions.
Key distinctions between the old and new tax slabs include an increased basic exemption limit to Rs 3 lakh from Rs 2.5 lakh in the new regime and a reduction of the number of income tax slabs from six to five.
Yes, the standard deduction of Rs 50,000, once exclusive to the old tax regime, has been extended to the new tax regime from FY 2023-24 (AY 2024-25) onwards.
You could opt for the Old regime if your tax-saving investments surpass Rs. 3,58,000, while the New regime is more suitable if your tax-saving investments fall below Rs 3,58,000.
Assuming no other income or deductions, the tax liability for a Rs 8 lakh salary would be Rs 42,500 under the old regime and Rs 37,500 under the new regime (excluding cess and surcharge). Hence, the new regime would be more advantageous, leading to a lower tax liability of Rs 5,000.
Source- incometax.gov.in
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