# Confused for the tax rates for FY 2022-23?

The budget 2023 brought significant changes in the personal tax regime. With the new regime being the default, it still allows the taxpayers to choose the old regime.

Most of the common people thought these amendments are for FY 2022-23/AY 2023-24. But, they are mistaken. These rates are applicable from FY 2023-24/AY 2024-25 onwards.

Let’s understand with a few examples.

Example 1:

Shreya has a business of gift packing. Her turnover for FY 2022-23 amounts to ₹60 lakhs annually. Expenses amount to ₹40 lakhs and hence a profit of ₹20 lakhs. She also has a rental income of ₹2 lakhs. Interest income from bank FDs is ₹50,000. She has made an investment in PPF of ₹1.5 lakhs.

What is her tax liability under the old and new regimes?

Solution:

Given that the income is for FY 2022-23. The filing of returns shall be done from 1 April 2023 till 31 July 2023. So, let’s calculate the tax liability for FY 2022-23/AY 2023-24 for Shreya.

Particulars Old regime Amount (in ₹) New regime Amount (in ₹)
Income from House Property 2,00,000
Less: Standard deduction of 30% (60,000) 1,40,000 1,40,000
Income from Business & Profession 60,00,000
Less: Expenses 40,00,000 20,00,000 20,00,000
Income from Other Sources 50,000 50,000
Gross Total Income 21,90,000 21,90,000
Less: Deduction u/s 80C (PPF) (1,50,000) (0)
Net Total Income 20,40,000 21,90,000
Tax Liability 4,24,500 3,94,500
Add: Cess at 4% 16,980 15,780
Total Tax Payable 4,41,480 4,10,280

It can be observed from the above calculation, that even after claiming the deductions in the old regime the tax liability under the new regime is lower.

Example 2:

Niyati will be a salaried individual working in TCS, Banglore from 1 April 2023. Her salary income will be ₹25 lakhs per annum. She will receive an exempt HRA of ₹2 lakhs from her employer. She also plans to invest in the share market and expects a trading income from F&O of ₹5 lakhs. She will also be paying for her senior citizen parent’s medical insurance a premium of ₹10,000 annually. She will also be eligible for a deduction u/s 80C for the investment of ₹1.5 lakhs in PPF. She has a brought forward loss of ₹1 lakh from F&O. What is her tax liability under the new and the old regime?

Solution:

The said income will be reported for FY 2023-24. The filing of returns shall be done from 1 April 2024 till 31 July 2024. So, let’s calculate the tax liability for FY 2023-24/AY 2024-25 for Niyati.

Particulars Old regime Amount (in ₹) New regime Amount (in ₹)
Income from Salary 25,00,000 25,00,000
Less: HRA (2,00,000) (0)
Less: Standard Deduction (50,000) (50,000)
22,50,000 24,50,000
Income from Business & Profession (F&O) 5,00,000 5,00,000
Less: Brought forward loss (1,00,000) (1,00,000)
Gross Total Income 26,50,000 28,50,000
Less: Deduction u/s 80D (10,000) (0)
Less: Deduction u/s 80C (1,50,000) (0)
Net Total Income 24,90,000 28,50,000
Tax Liability 5,59,500 5,55,000
Add: Cess at 4% 22,380 22,200
Total Tax Payable 5,81,880 5,77,200

We can infer from the above table that Niyati’s tax liability is higher in the old regime, even after taking the deductions into consideration.

Conclusion:

It is always advisable to calculate tax under both regimes to opt for the most optimal one. However, be careful when you have business income, you cannot switch regimes every year.