The recent Budget 2023 has caused a lot of confusion among taxpayers regarding the choice between the old and new tax regimes. The government has introduced various incentives in the 2023 Budget to encourage the adoption of the new regime.
These changes show that the government’s intention is to have taxpayers transition to the new regime and eventually phase out the old one. Though the new regime is now the default tax regime, the old tax regime will continue to exist.
Let’s look at both regimes and see which regime to opt for in 2023.
A new tax regime was introduced in Budget 2020 wherein the tax slabs were altered, and taxpayers were offered concessional tax rates. However, those who opt for the new regime cannot claim several exemptions and deductions, such as HRA, LTA, 80C, 80D and more. Because of this, the new tax regime did not have many takers. The government in Budget 2023 introduced 5 key changes to encourage taxpayers to adopt the new regime. They are:
Total Income | Rate of Tax |
up to ₹3,00,000 | Nil |
₹3,00,001- ₹6,00,000 | 5% |
₹6,00,001- ₹9,00,000 | 10% |
₹9,00,001- ₹12,00,000 | 15% |
₹12,00,001- ₹15,00,000 | 20% |
₹15,00,001 and above | 30% |
The tax rates under both the regimes compare as below:
Income Slab | Old Tax Regime | New tax Regime (until 31st March 2023) | New Tax Regime (From 1st April 2023) |
₹0 - ₹2,50,000 | - | - | - |
₹2,50,000 - ₹3,00,000 | 5% | 5% | - |
₹3,00,000 - ₹5,00,000 | 5% | 5% | 5% |
₹5,00,000 - ₹6,00,000 | 20% | 10% | 5% |
₹6,00,000 - ₹7,50,000 | 20% | 10% | 10% |
₹7,50,000 - ₹9,00,000 | 20% | 15% | 10% |
₹9,00,000 - ₹10,00,000 | 20% | 15% | 15% |
₹10,00,000 - ₹12,00,000 | 30% | 20% | 15% |
₹12,00,000 - ₹12,50,000 | 30% | 20% | 20% |
₹12,50,000 - ₹15,00,000 | 30% | 25% | 20% |
>₹15,00,000 | 30% | 30% | 30% |
The old regime is the tax system that prevailed before the introduction of the new regime. Under this regime, there are over 70 exemptions and deductions available, including HRA and LTA, that can reduce your taxable income and lower tax payments. The most popular and generous deduction is Section 80C, which allows for a reduction of taxable income up to Rs.1.5 lakh. The taxpayers are given a choice between the old and the new tax regime.
The decision to switch to the new or remain in the old tax regime or which regime is better for you shall be based on the tax savings deductions and exemptions you are eligible for in the old tax regime. To make it easier, we have calculated a breakeven point for various income levels (refer to the table below) for a salaried individual below 60 years of age. This can be used to determine which regime to choose.
The Breakeven point is that amount where there will be no difference in tax liability between the two tax regimes.
If your total eligible deductions and exemptions in the old tax regime are higher than the breakeven threshold for your income level, it is advisable to stay in the old regime. On the other hand, if the breakeven threshold is higher, then moving to the new tax regime is more beneficial.
If you have salary income:
Income Level | Less: Standard Deduction | Net Income | Tax under both regimes | Additional Deductions (over & above standard deduction) required in Old Regime to Break Even | Which Tax Regime to choose- old or new? |
₹7,00,000 | ₹50,000 | ₹6,50,000 | ₹0 | ₹1,50,000 | You will benefit only in new regime. |
₹8,00,000 | ₹50,000 | ₹7,50,000 | ₹36,400 | ₹1,38,500 | Old regime: if deductions > Rs 1,38,500 |
₹9,00,000 | ₹50,000 | ₹8,50,000 | ₹41,600 | ₹2,12,500 | Old regime: if deductions > Rs 2,12,500 |
₹10,00,000 | ₹50,000 | ₹9,50,000 | ₹54,600 | ₹2,50,000 | Old regime: if deductions > Rs. 2,50,000 |
₹12,50,000 | ₹50,000 | ₹12,00,000 | ₹93,600 | ₹3,12,500 | Old regime: if deductions > Rs. 3,12,500 |
₹15,00,000 | ₹50,000 | ₹14,50,000 | ₹1,45,600 | ₹3,58,000 | Old regime: if deductions > Rs. 3,58,000 |
₹15,50,000 | ₹50,000 | ₹15,00,000 | ₹1,56,000 | ₹3,75,000 | Old regime: if deductions > Rs. 3,75,000 |
₹16,00,000 | ₹50,000 | ₹15,50,000 | ₹1,71,600 | ₹3,75,000 | Old regime: if deductions > Rs. 3,75,000 |
Here are a few calculations to which will help you decide between old vs the new tax regime:
Here is a comparison between the deductions and exemptions available under the new and the old tax regime:
Particulars | Old Tax Regime | New tax Regime (until 31st March 2023) | New Tax Regime (From 1st April 2023) |
Income level for rebate eligibility | ₹ 5 lakhs | ₹ 5 lakhs | ₹ 7 lakhs |
Standard Deduction | ₹ 50,000 | - | ₹ 50,000 |
Effective Tax-Free Salary income | ₹ 5.5 lakhs | ₹ 5 lakhs | ₹ 7.5 lakhs |
Rebate u/s 87A | ₹12,500 | ₹12,500 | ₹25,000 |
HRA Exemption | ✓ | X | X |
Leave Travel Allowance (LTA) | ✓ | X | X |
Other allowances including food allowance of Rs 50/meal subject to 2 meals a day | ✓ | X | X |
Standard Deduction (Rs 50,000) | ✓ | X | ✓ |
Entertainment Allowance and Professional Tax | ✓ | X | X |
Perquisites for official purposes | ✓ | ✓ | ✓ |
Interest on Home Loan u/s 24b on: Self-occupied or vacant property | ✓ | X | X |
Interest on Home Loan u/s 24b on: Let-out property | ✓ | ✓ | ✓ |
Deduction u/s 80C (EPF | LIC | ELSS | PPF | FD | Children's tuition fee etc) | ✓ | X | X |
Employee's (own) contribution to NPS | ✓ | X | X |
Employer's contribution to NPS | ✓ | ✓ | ✓ |
Medical insurance premium - 80D | ✓ | X | X |
Disabled Individual - 80U | ✓ | X | X |
Interest on education loan - 80E | ✓ | X | X |
Interest on Electric vehicle loan - 80EEB | ✓ | X | X |
Donation to Political party/trust etc - 80G | ✓ | X | X |
Savings Bank Interest u/s 80TTA and 80TTB | ✓ | X | X |
Other Chapter VI-A deductions | ✓ | X | X |
All contributions to Agniveer Corpus Fund - 80CCH | ✓ | Did not exist | ✓ |
Deduction on Family Pension Income | ✓ | ✓ | ✓ |
Gifts upto Rs 5,000 | ✓ | ✓ | ✓ |
Exemption on voluntary retirement 10(10C) | ✓ | ✓ | ✓ |
Exemption on gratuity u/s 10(10) | ✓ | ✓ | ✓ |
Exemption on Leave encashment u/s 10(10AA) | ✓ | ✓ | ✓ |
Daily Allowance | ✓ | ✓ | ✓ |
Conveyance Allowance | ✓ | ✓ | ✓ |
Transport Allowance for a specially-abled person | ✓ | ✓ | ✓ |
If you have an income of Rs 7 lakhs, the new tax regime will benefit you.
If you have an income of Rs 10 lakhs, the old tax regime will benefit you only if you have made tax savings investments (deductions other than standard deductions) of over Rs 2,62,500.
If these deductions are less than Rs 2,62,500, then the new regime will be better for you.
The old tax regime is good for you if you have invested more than Rs 3,00,000 in tax saving schemes. If you have invested or spent less than Rs 3,00,000, then the new regime will be better for you.
Which regime is better for you will depend on the amount of tax-saving investments you have made:
If you have an income of Rs 20 lakhs, the best regime for you will depend on the tax deductions you are eligible for:
If you have an income of Rs 20 lakhs, the best regime for you will depend on the tax deductions you are eligible for:
If you have an income of Rs 20 lakhs, the new regime will benefit you if your tax deductions are less than Rs 3,75,000. Else, opt-in for the old tax regime.
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