New Tax Regime vs. Old: Which One Should You Opt For? To opt new tax regime or not, is the question? From next year, how much you are going to pay income tax, your calculations are already started after the finance minister announced the budget on February 1. I have been dealing with the tax calculation of employees for 20 years. So, I thought of writing an article on “New Tax Regime vs. Old: Which One Should You Opt For?”
“It is proposed to increase the rebate for the resident individual under the new regime so that they do not pay tax if their total income is up to ₹7 lakh,” Sitharaman said.
No change in Old Tax Regime in Budget 2023-24
There will be a significant change in the new tax regime in the budget for 2023–24, but there will be no change for those who have accepted the old regime due to their commitments to paying house loans, GPF, and other compulsory liabilities, as most people are nearing retirement or earning a high salary.
I will provide two examples of the new and old tax regimes and which will benefit you.
Answer the following questions before deciding “New Tax Regime vs. Old: Which One Should You Opt For?”
Before going into the calculations and benefits of the New Tax Regime vs. the Old, answer the following questions:
- Do you make monthly payments on your mortgage?
- Does anyone in your family currently have student loans?
- Do you have a payment plan for your health insurance?
- Do you pay child tuition fees, insurance premiums, or loan principal because they are covered by section 80 C of the income tax act?
- Are you fond of spending a lot?
- What are your retirements plan?
- Do you believe in savings for the future?
- What is your total income from all sources?
New Tax Regime vs. Old: Example for 2022-23
If Your Saving is Less than Rs 3.75 lac Annually: Go For #New Regime
The budget’s planned reforms would exempt those with yearly incomes up to Rs 7 lakh from paying taxes under the new system. For individuals who continue to benefit from the tax benefits and deductions for investments and costs like house rent allowance under the previous regime, however, it made no adjustments. Therefore, a taxpayer will be recommended to choose the new tax regime as announced in the Budget if they deduct less than Rs 3.75 lakh when filing their yearly I-T filings. The officer replied, “They will stand to benefit by taking advantage of the reduced tax slab as indicated in the budget.
Main Attractions of #New Tax Regime 2023-2024
- If your total income is less than 7 lac, then you need not pay any tax from the next year.
- If your income is more than 7 lac, then the complete table will be applicable on you.
- No saving proofs are required in new tax regime.
- The new tax regime will “lower down” compliance requirements that taxpayers must meet because they won’t need to collect investment-related paperwork to show their employers or the I-T Department when they file their returns.
- No tax first 3 lac income
- 5% tax on 3-5 lac
- 10% tax on 6-9 lac
- 15% tax on 9-12 lac.
- 20% tax on 12.1-15 lac
- Above 15 lac, tax will be 30%
What is the difference between gross income and total income?
Many of us have confusion between gross income and total income or taxable income. We calculate income tax on gross income. This is wrong, as the income tax is calculated on total income, not gross income. Thus, the difference between gross and total income must be understood before calculating your income tax.
Gross total income is the total income that falls within the categories of salaries, rental income, business and professional earnings, capital gains, and other sources of income before any deductions are made under Sections 80C to 80U.
Total income, often known as taxable income, is defined as gross total income less any deductions allowed under Sections 80C to 80U.
Hence, your total income or taxable income will always be less than the Gross Total Income.
Tax Slabs in FY 2023-24: New Tax Regime vs. Old
In the budget of FY 2023-24, there will be two types of tax slabs:
- Persons who want to clain IT Deductions and Exemptions.
- Persons who do not want to clain IT Deductions and Exemptions.
Revised Latest Income Tax Slab Rates vs Old Tex Regime
- There will be five income tax slabs as compare to the previus FY 2022-23.
- Changes in income tax slab rates are applicable only to the new tax regimes.
- No change in old tax regime.
- The standard deduction available for the salaried class and the pensioners including family pensioners is available only for the old tax regime.
- The standard deduction is also available for the salaried class and the pensioners including family pensionersin the new regime.
- The new tax regime is a default tax regime and you will have to opt the old if you want.
- The rebate under Sec.87A was up to Rs.5 lakh. This is now enhanced to Rs.7 Lakh.
- Therefore, if your income is below Rs.7 lakh and opting for a new tax regime, then you need not to pay the tax.
In the new tax regime, how is income up to ₹ 7 lac tax-free?
# You must be a RESIDENT
# Your Total Income, after Deductions and savings, (like under Section 80C to 80U) is equal to or less than ₹ 5,00,000 (for the old tax regime). But for the new tax regime, it is now increased to ₹ 7,00,000.
If the two conditions above are met, the resident can claim a rebate under Section 87A, which is explained below.
- 100% of income tax or Rs. 12,500, whichever is less (for the old tax regime).
- 100% of income tax or Rs. 25,000, whichever is less (for the new tax regime),
In a Budget 2023 speech, it is clearly mentioned as below.
“The first one concern rebate.” Currently, those with income up to Rs. 5 lakh do not pay any income tax in both the old and new tax regimes. I propose to increase the rebate limit to Rs. 7 lakh in the new tax regime. Thus, under the new tax regime, individuals earning up to Rs. 7 lakh will not be required to pay any tax.
It is clearly mentioned that the Rs. 7 lakh enhancement is ONLY FOR THE NEW TAX REGIME. However, there is no alternative for this section if you are under the old tax regime.
Examples of New Tax Regime vs. Old
Example 1. Ramesh is working as a PGT Biology and his gross total income is Rs. 700000.
Under Sec.87A , if your income is below Rs.7 lakh and opting for a new tax regime, then you need not to pay the tax.
Example 2. Rajwati is working as a PGT English and his gross total income is Rs. 700001.
- Upto 3 Lac, Income Tax= Nil
- 3 Lac to 6 Lac, Income Tax= 5%; Tax = 15000/-
- 6 Lac to 700001; Income Tax: 10%, Tax= 10000/-
Total Tax in case your income crosses 7 Lac= 25000/-
Thus, You don’t require to pay any tax if your income is 7 lac or less but if it crosses 7 lac, the above rule applies.
Old Tax Regime?
Example 3. Ramesh is working as a PGT Biology and his gross total income is Rs. 700000. Saving under 80 C= 1,50,000/-
Total Income= 700000-150000=550000
- First 250000/- No Tax
- Next 250000/- to 500000/- Tax= 5%= 12500/-
- Next 50000, Tax= 20% = 10000
Total Tax= 22500/-
More Examples of income tax Calculation of New Tax Regime vs. Old Tax Regime
|New Tax Regime
|New Tax Regime
|Old Tax Regime||Old Tax Regime|
|Gross Income=₹7 lakh||Tax Payable- Nil||Gross Income= ₹7 lakh||Tax Payable= ₹22,901|
|Gross Income= ₹10 lakh||Tax Payable = ₹54,600||Gross Income= ₹10 lakh||Tax Payable = ₹31,221|
|Gross Income-=₹20 lakh||Tax Payable= ₹2,96,400||Gross Income=₹20 lakh||Tax Payable= ₹2,88,371|
|Gross Income= ₹35 lakh||Tax Payable= ₹7,64,000||Gross Income= ₹35 lakh||Tax Payable= ₹7,26,211|
New Tax Regime vs. Old: Which One Should You Opt For?
- Person who has worked for more than 10 years then old tax regime will suit him as he might be saving and their continuity is must. Old Tax regime provides benefits of deductions of HRA EXEMPTION, STANDARD DEDUCTION, 80 C, 80D, and deduction on interest on their home loan under old tax regime.
- Person who is new in the job, the new tax regime is beneficial.
Thus, you should go for New Tax Regime instead of Old Tax Regime if your savings are less than Rs. 350000/-
Disclaimer : This article on ” New Tax Regime vs. Old: Which One Should You Opt For?” is solely for educational purpose and cannot be construed as legal and professional opinion. It is based on the interpretation of the author and are not binding on any tax authority. Author is not responsible for any loss occurred to any person acting or refraining from acting as a result of any material in this article.