The new tax regime was the major highlight in the Budget 2023 by FM Nirmala Sitharaman.
The budget aimed to simplify the tax structure for the middle class. Under the new tax regime:
- Income slabs were reduced
- Standard deduction was introduced
- Rebate limit increased
New Tax Regime was made the default regime. However, taxpayers can still opt for the old tax regime, which had seen no changes.
Simply stated, in the old regime, you pay tax after considering deductions u/s 80C for certain investments like mutual funds, EPF, PPF, etc., u/s 80D for medical insurance, and salaried individuals get a standard deduction and a benefit of house rent under HRA.
Talking about the new regime, you pay tax on income earned without any deductions.
Until the previous FY, it hasn’t been very popular because most people still paid less amount of taxes under the old regime as they could claim deductions. However, that does not mean you do not invest in your future securities.
Hence, to make the new regime attractive, the FM increased the rebate limit u/s 87A to ₹25,000 from ₹12,500 applicable from FY 2023-24. So, it’s a benefit to people who earn income up to ₹7 lakhs as their income will be completely tax-free, and also don’t have to worry about making investments or purchasing insurance to save taxes.
Many of you are trying to evaluate which of the two regimes is better and relevant to your income situation!
Let’s look at how the new tax regime is made more attractive as compared to the old regime.
Tax Rates: Old Regime & New Regime
Now that we have understood the differences, let’s try to understand the taxability under both regimes as per the Budget 2023-24.
Let’s say, Aman who is 25 years old has a gross total income of ₹12 lakhs as under:
Income from Salary = 8 lakhs
Income from House Property = 1 lakh
Income from Other Sources = 3 lakhs
- Interest Income from FD = 2L
- Interest Income from Savings Account = 1L
He is eligible for a deduction u/s 80C of ₹1,50,000 as he has invested the amount in PPF and a deduction u/s 80TTA of ₹10,000.
What should be the taxability for Aman?
So, from the above table we can observe that even after claiming deductions under the old regime, the tax liability under the new regime is lower.
Hence, the regime to be chosen should be after comparing the tax liability under both regimes.