Which Is Better OLD Or NEW Tax Regime For Salaried Employees
The new financial has begun on 1st April 2023 and many taxpayers are still wondering about the merits and demerits of both tax regimes. The new and old tax regimes have pros and cons for the taxpayers, so it becomes quite perplexing to choose the most suitable tax regime.
The new financial has begun on 1st April 2023 and many taxpayers are still wondering about the merits and demerits of both tax regimes. The new and old tax regimes have pros and cons for the taxpayers, so it becomes quite perplexing to choose the most suitable tax regime. To address certain important issues, the following is a simplified overview of both regimes. So, it becomes essential to identify the most suitable tax regime. Below is a detailed overview of both tax regimes and which taxpayers must choose.
New Tax Regime
New tax regime is designed to simplify the tax system and make it easier for taxpayers to file their taxes. As per the new tax regime, the basic exemption limit has been updated to Rs. 3 lakhs. The income tax rebate limit available for salaried and individual taxpayers under the new income tax regime has been increased to Rs. 7 lakhs from the current Rs 5 lakhs. The new tax regime will be the default tax regime - FM Said in budget 2023. Below are the tax rates under the new tax regime.
Tax Rates Under New Tax Regimes
|
Income |
Tax Rates |
|
Up to 3 lakhs |
NIL |
|
Rs. 3 lakhs to Rs. 6 lakhs |
5% |
|
Rs. 6 lakhs to Rs. 9 lakhs |
10% |
|
Rs. 9 lakhs to Rs. 12 lakhs |
15% |
|
Rs. 12 lakhs to Rs. 15 lakhs |
20% |
|
Above Rs. 15 lakhs |
30% |
Old Tax Regime
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The old tax regime refers to the income tax system that was in place before the introduction of the new tax regime in India in 2020. Under the old tax regime, individuals and businesses were subject to different tax rates depending on their income or profit levels and were allowed to claim various deductions and exemptions to reduce their tax liability. We have mentioned below tax rates under the old tax regime in tabular form.
Tax Rates Under New Tax Regimes
|
Income |
Tax Rates |
|
Up to 2.5 lakhs |
NIL |
|
Rs. 2.5 lakhs to Rs. 5 lakhs |
5% (Rebate u/s 87A is available) |
|
Rs. 5 lakhs to Rs. 10 lakh |
20% |
|
Above Rs. 10 lakhs |
30% |
New Tax Regime is beneficial if the total deduction is Rs. 1.5 Lakhs or Less
When total deductions are below Rs. 1.5 lakhs
|
A |
B |
C |
D |
E |
Gross total income |
Tax under old regime Including:Standard Deduction - Rs. 50,000Other u/s 80C, 80D - Rs. 1,50,000Rebate On income up to Rs. 5,00,000 |
Tax as per New Regime (Post-Budget 2023)Standard Deduction: Rs, 50,000Rebate on Income up to Rs. 7,00,000 |
Difference (B-D) |
Which Regime is better |
|---|---|---|---|---|
|
Rs. 5,00,000 |
Rs. 0 |
Rs. 0 |
Rs. 0 |
Any |
|
Rs. 6,00,000 |
Rs. 0 |
Rs. 0 |
Rs. 0 |
Any |
|
Rs. 7,00,000 |
Rs. 0 |
Rs. 0 |
Rs. 0 |
Any |
|
Rs. 7,50,000 |
Rs.22,500 |
Rs. 0 |
Rs. 22,500 |
New |
|
Rs. 8,00,000 |
Rs. 32,500 |
Rs. 30,000 |
Rs. 2,500 |
New |
|
Rs. 9,00,000 |
Rs. 52,500 |
Rs. 40,000 |
Rs.12,500 |
New |
|
Rs. 10,00,000 |
Rs. 72,500 |
Rs. 52,500 |
Rs.20,000 |
New |
|
Rs. 13,00,000 |
Rs. 1,42,500 |
Rs. 1,00,000 |
Rs.42,500 |
New |
|
Rs. 15,00,000 |
Rs. 2,02,500 |
Rs. 1,40,000 |
Rs.62,500 |
New |
|
Rs. 15,50,000 |
Rs. 2,17,500 |
Rs.1,50,000 |
Rs.67,500 |
New |
|
Rs. 17,00,000 |
Rs. 2,62,500 |
Rs. 1,95,000 |
Rs.67,500 |
New |
|
Rs. 20,00,000 |
Rs. 3,52,500 |
Rs. 2,85,000 |
Rs.67,500 |
New |
|
Rs. 30,00,000 |
Rs. 6,52,500 |
Rs.5,85,000 |
Rs.67,500 |
New |
New Tax Regime is beneficial if the total deduction is more than Rs. 1.5 Lakhs
|
A |
B |
C |
D |
E |
Gross total income |
Tax under old regime Including:Standard Deduction - Rs. 50,000Other u/s 80C, 80D + NPS+Home Loan interest (up to Rs. 2,00,000) etc +considered Rs. 3,80,000 = Rs. 1,50,000 + Rs. 55000+Rs.25000+ Rs. 1,50,000Rebate On income up to Rs. 5,00,000 |
Tax as per New Regime (Post-Budget 2023)Standard Deduction: Rs, 50,000Rebate on Income up to Rs. 7,00,000 |
Difference (B-D) |
Which Regime is better |
|---|---|---|---|---|
|
Rs. 5,00,000 |
Rs. 0 |
Rs. 0 |
Rs. 0 |
Any |
|
Rs. 6,00,000 |
Rs. 0 |
Rs. 0 |
Rs. 0 |
Any |
|
Rs. 7,00,000 |
Rs. 0 |
Rs. 0 |
Rs. 0 |
Any |
|
Rs. 7,50,000 |
Rs. 0 |
Rs. 0 |
Rs. 0 |
Any |
|
Rs. 8,00,000 |
Rs. 0 |
Rs. 30,000 |
Rs. 30,000 |
Old |
|
Rs. 9,00,000 |
Rs. 0 |
Rs. 40,000 |
Rs. 40,000 |
Old |
|
Rs. 10,00,000 |
Rs. 26,500 |
Rs. 52,500 |
Rs. 26,000 |
Old |
|
Rs. 13,00,000 |
Rs.86,500 |
Rs. 1,00,000 |
Rs. 13,500 |
Old |
|
Rs. 15,00,000 |
Rs. 1,33,500 |
Rs. 1,40,000 |
Rs. 6,500 |
Old |
|
Rs. 15,50,000 |
Rs. 1,48,500 |
Rs.1,50,000 |
Rs. 1,500 |
Old |
|
Rs. 17,00,000 |
Rs.1,93,500 |
Rs. 1,95,000 |
Rs. 1,500 |
Old |
|
Rs. 20,00,000 |
Rs. 2,83,500 |
Rs. 2,85,000 |
Rs. 1,500 |
Old |
|
Rs. 30,00,000 |
Rs. 5,83,500 |
Rs.5,85,000 |
Rs. 1,500 |
Old |
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If you have salary income:
table_responsive
|
Gross income |
Zero |
1,00,000 |
1,50,000 |
1,62,500 |
1,87,500 |
2,12,500 |
2,37,500 |
2,50,000 |
2,62,500 |
2,87,500 |
3,12,500 |
3,25,000 |
3,50,000 |
3,75,000 |
|
5,00,000 |
SAME |
SAME |
SAME |
SAME |
SAME |
SAME |
SAME |
SAME |
SAME |
SAME |
SAME |
SAME |
SAME |
SAME |
|
6,00,000 |
New |
SAME |
SAME |
SAME |
SAME |
SAME |
SAME |
SAME |
SAME |
SAME |
SAME |
SAME |
SAME |
SAME |
|
6,50,000 |
New |
SAME |
SAME |
old |
old |
Old |
old |
old |
Old |
old |
old |
old |
old |
old |
|
7,50,000 |
New |
New |
New |
SAME |
old |
Old |
old |
old |
Old |
old |
old |
old |
old |
old |
|
8,00,000 |
New |
New |
New |
New |
SAME |
Old |
old |
old |
Old |
old |
old |
old |
old |
old |
|
8,50,000 |
New |
New |
New |
New |
New |
SAME |
old |
old |
Old |
old |
old |
old |
old |
old |
|
9,00,000 |
New |
New |
New |
New |
New |
New |
SAME |
old |
Old |
old |
old |
old |
old |
old |
|
9,50,000 |
New |
New |
New |
New |
New |
New |
New |
SAME |
Old |
old |
old |
old |
old |
old |
|
10,00,000 |
New |
New |
New |
New |
New |
New |
New |
New |
SAME |
old |
old |
old |
old |
old |
|
11,00,000 |
New |
New |
New |
New |
New |
New |
New |
New |
New |
SAME |
old |
old |
old |
old |
|
12,00,000 |
New |
New |
New |
New |
New |
New |
New |
New |
New |
New |
SAME |
old |
old |
old |
|
13,50,000 |
New |
New |
New |
New |
New |
New |
New |
New |
New |
New |
New |
SAME |
old |
old |
|
14,25,000 |
New |
New |
New |
New |
New |
New |
New |
New |
New |
New |
New |
New |
SAME |
old |
|
15,00,000 |
New |
New |
New |
New |
New |
New |
New |
New |
New |
New |
New |
New |
SAME |
old |
|
16,00,000 |
New |
New |
New |
New |
New |
New |
New |
New |
New |
New |
New |
New |
SAME |
old |
|
17,00,000 |
New |
New |
New |
New |
New |
New |
New |
New |
New |
New |
New |
New |
SAME |
old |
|
18,00,000 |
New |
New |
New |
New |
New |
New |
New |
New |
New |
New |
New |
New |
SAME |
old |
|
19,00,000 |
New |
New |
New |
New |
New |
New |
New |
New |
New |
New |
New |
New |
SAME |
old |
|
20,00,000 |
New |
New |
New |
New |
New |
New |
New |
New |
New |
New |
New |
New |
SAME |
old |
Let’s understand how to calculate taxes using both new and old tax regimes with the help of an example:-
- Income from Salary after HRA and LTA benefit - 11,30,000
- Income from Other Sources - 20,000
- Deduction u/s 10 (HRA RS 2,00,000/- AND LTA RS 10,000/-)
- Deduction u/s 80C - 1,50,000.
- Deduction u/s 80D - 25,000
- Deduction u/s 80CCD(1B) - 50,000.
- So, total taxable income would be 6,65,000
Tax Calculation under Old regime
|
Salary income |
Amount |
|
Basic |
8,00,000 |
|
HRA |
3,20,000 |
|
LTA |
10,000 |
|
Total CTC |
11,30,000 |
|
HRA |
2,00,000 |
|
LTA |
10,000 |
|
Standard deduction |
50,000 |
|
Net taxable salary |
8,70,000 |
|
Other income |
20,000 |
|
Gross total income |
8,90,000 |
Deduction |
|
|
80C |
1,50,000 |
|
80CCD(1B) |
50,000 |
|
80D |
25,000 |
|
Total deductions |
2,25,000 |
|
|
|
|
Net Taxable Income |
6,65,000 |
|
Total tax on above |
47,320 |
|
|
|
|
Upto 250,000 |
Upto NIL |
|
250,000 to 500,000 |
12,500 |
|
Balance 1,65,000 |
33,000 |
|
Total |
47,320 |
Tax Calculation under New Regime as per FY. 2023-2024
|
Salary income |
Amount |
|
Basic |
8,00,000 |
|
HRA |
3,20,000 |
|
LTA |
10,000 |
|
Total CTC |
1,13,0000 |
|
Less :- Standard deduction |
50,000 |
|
Net taxable salary |
10,80,000 |
|
Other income |
20,000 |
|
Gross total income |
11,00,000 |
|
Net taxable salary |
11,00,000 |
|
Total tax on above |
78,000 |
|
|
|
|
Upto 3,00,000 |
NIL |
|
3,00,000 to 6,00,000 |
15,000 |
|
6,00,000 to 9,00,000 |
30,000 |
|
9,00,000 to 12,00,000 |
30,000 |
|
Total tax |
75,000 |
|
Health & education cess 4% |
3,000 |
|
Total |
78,000 |
The example below shows how two taxpayers can have the same gross income yet be qualified for two distinct exemptions/deductions.
Amit Kumar and Ram Singh are two salaried taxpayers with no other sources of income
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|
Particulars for FY 2023-24 |
Amit Kumar |
Ram Singh |
|
Salary Income |
18,00,000 |
18,00,000 |
|
Exemption For House Rent Allowance (HRA) |
2,80,000 |
Nil |
|
Exemption For Leave Travel Allowance (LTA) |
50,000 |
Nil |
|
Standard Deduction |
50,000 |
50,000 |
|
Deduction u/s 80C for EPF, PPF |
1,50,000 |
1,50,000 |
Let us analyze below, which tax regime is more beneficial for Piyush and Sourav
Amit kumar
|
Particulars |
New Tax Regime |
Old Tax Regime |
|
Salary Income |
Rs. 18,00,000 |
Rs. 18,00,000 |
|
Less: HRA exemption |
Not Applicable |
Rs. 2,80,000 |
|
Less: LTA exemption |
Not Applicable |
Rs. 50,000 |
|
Less: standard deduction |
Rs. 50,000 |
Rs. 50,000 |
|
Less: Deduction under section 80C, PF |
Not Applicable |
Rs. 1,50,000 |
|
Net Taxable Income |
17,50,000 |
Rs. 11,70,000 |
|
Tax on Income |
2,34,000 |
2,01,240 |
Ram Singh This salaried person does not have exemptions for HRA, LTA
|
Particulars |
New Tax Regime |
Old Tax Regime |
|
Salary Income |
Rs. 18,00,000 |
Rs. 18,00,000 |
|
Less: standard deduction |
Rs. 50,000 |
Rs. 50,000 |
|
Less: Deduction under section 80C, PF |
Not Applicable |
Rs. 1,50,000 |
|
Net Taxable Income |
17,50,000 |
Rs. 16,00,000 |
|
Tax on Income |
2,34,000 |
3,04,200 |
Note: If ram singh increases the amount of the investment in various options, he would be liable to less tax.
How to Select For Old Tax Regime In 2023?
Now, in order to choose the new tax system, a taxpayer earning income from a business or profession must file Form 10IE. This form was released in October 2020. Beginning of the financial year 2023-24, taxpayers must opt for the old tax regime under the amendments suggested by the Union Budget 2023. The method for selecting the old tax regime will be specified by the tax department later.
FAQs
- Is family income considered as salary income?
No. The family pension is considered “income from other sources” not salary income.
- Which tax regime would be good for me If I have an income of Rs. 7 lakhs?
The new tax regime will be a good fit in case you have an income of Rs. 7 lakhs.
- Can I switch either for old tax regime or a new one?
Yes. You can opt for the old tax regime as well as the new tax regime according to your preference.
- Which tax regime is beneficial for a salary of Rs. 25 lakhs?
This will depend on the number of investments that you have towards tax-saving investments.
- Who is eligible to claim rebate under section 87A?
As per the new tax regime, any Indian resident individual whose total annual income is up to Rs. 7 lakhs is eligible to claim rebates under section 87A
- Who modifies the income tax slabs?
The finance ministry of India makes changes in income tax slabs.
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Krishna Gopal Varshney
An editor at MyitronlinenewsKrishna Gopal Varshney, Founder & CEO of Myitronline Global Services Private Limited at Delhi. A dedicated and tireless Expert Service Provider for the clients seeking tax filing assistance and all other essential requirements associated with Business/Professional establishment. Connect to us and let us give the Best Support to make you a Success. Visit our website for latest Business News and IT Updates.
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