When it comes to taxes, it’s essential to understand how they can impact your finances and help you make informed decisions. So, the question remains: which regime is optimal for you?
In the old tax regime, you pay tax after considering deductions such as section 80C, for investments like mutual funds, EPF, PPF, and more. Additionally, section 80D for medical insurance, while salaried individuals can benefit from standard deductions and HRA. Essentially, the old regime allows you to reduce your tax liability by considering these deductions.
Whereas, the new regime offers a simplified tax structure with reduced tax slabs and you pay tax without any deductions.
Tax Rates: Old Regime & New Regime for AY 2023-24
Now that we have understood the differences, and try to understand the taxability under both regimes.
Let’s say you’re an individual below 60 years with a gross total income of ₹11 lakhs. Your income comprises ₹8 lakhs from salary and ₹3 lakhs from other sources, which includes interest income of ₹2 lakhs from fixed deposits (FD) and ₹1 lakh from savings accounts.
In addition, you are eligible for a deduction under section 80C of ₹1,50,000 as you have invested the amount in PPF. You are also eligible for a deduction under section 80TTA of ₹10,000 for the interest earned on your savings account.
|Particulars||Old Tax Regime||New Tax Regime|
|Less: Standard Deduction||₹50,000||Nil|
|Total Income (A)||₹10,50,000||₹11,00,000|
|Less: Chapter VI-A Deductions|
|Under section 80C||₹1,50,000||Nil|
|Under section 80TTA||₹10,000||Nil|
|Total Deduction (B)||₹1,60,000||Nil|
|Taxable Income (A-B)||₹8,90,000||₹11,00,000|
|Net tax liability||₹12,500+78,000||₹12,500+25,000+37,500+20,000|
|Add: 4% Cess||₹3,620||₹3,800|
It is recommended to calculate your taxes under both regimes to determine the most optimal one for your situation.
Note: If you have business income, you cannot switch between the two regimes every year.