As the financial year comes to a close, it’s time to start thinking about income tax returns for the Assessment Year 2023-24. The government has introduced two tax regimes that taxpayers can choose from – the old tax regime and the new tax regime. In this blog, we’ll compare the two and help you make an informed decision.
Old Tax Regime:
Under the old tax regime, taxpayers are entitled to various tax exemptions and deductions. These include exemptions for house rent allowance, leave travel allowance, and standard deduction. Taxpayers can also claim deductions for various expenses such as investments in Public Provident Fund (PPF), National Pension System (NPS), life insurance premiums, and home loan interest.
The tax rates under the old regime are as follows:
- For individuals with an annual income of up to Rs. 2.5 lakh, no tax is applicable.
- For individuals with an annual income between Rs. 2.5 lakh to Rs. 5 lakh, a tax rate of 5% is applicable.
- For individuals with an annual income between Rs. 5 lakh to Rs. 10 lakh, a tax rate of 20% is applicable.
- For individuals with an annual income above Rs. 10 lakh, a tax rate of 30% is applicable.
New Tax Regime:
Under the new tax regime, taxpayers are not entitled to any tax exemptions or deductions. However, the tax rates under this regime are lower than the old regime.
The tax rates under the new regime are as follows:
- For individuals with an annual income of up to Rs. 3 lakh, no tax is applicable.
- For individuals with an annual income between Rs. 3 lakh to Rs. 6 lakh, a tax rate of 5% is applicable.
- For individuals with an annual income between Rs. 6 lakh to Rs. 9 lakh, a tax rate of 10% is applicable.
- For individuals with an annual income between Rs. 9 lakh to Rs. 12 lakh, a tax rate of 15% is applicable.
- For individuals with an annual income between Rs. 12 lakh to Rs. 15 lakh, a tax rate of 20% is applicable.
- For individuals with an annual income above Rs. 15 lakh, a tax rate of 30% is applicable.
Comparison:
Under the old tax regime, taxpayers can claim various tax exemptions and deductions, which can significantly reduce their taxable income. However, the tax rates are higher than the new regime.
Under the new tax regime, taxpayers cannot claim any tax exemptions or deductions, which means their taxable income is higher. However, the tax rates are lower, which could result in lower tax liability.
It’s important to note that once a taxpayer chooses the new tax regime, they cannot switch back to the old regime.
Scenario 1: When You Don’t Claim Any Deduction or Exemption
In this scenario, we compare the two regimes assuming that the individual does not claim any deduction in both.
Assume Sumit is an employee who works as an engineer and has an income of Rs 9 lakh. Unfortunately, due to his education expenditure and family obligations, he is unable to avail deductions available under the old tax regime. So under the old tax regime, his tax liability comes out to be Rs 85,800.
This is how the calculations work for Sumit.
Taxable income: Rs 9,00,000 – Rs 50,000 (Standard Deduction) = Rs 8,50,000
| Income Tax Calculation Under Old Tax Regime | ||
| Tax Slabs Under Old Tax Regime | Tax Rate | Amount (₹) |
| Taxable Income | Rs. 8,50,000 | |
| 0 – 2,50,000 | 0% | NA |
| 2,50,000 – 5,00,000 | 5% | 12,500 (5% *2,50,000) |
| 5,00,000 – 10,00,000 | 20% | 70,000 (20% * 3,50,000) |
| 10,00,000 & above | 30% | NA |
| Total Tax | 82,500 | |
| Cess @ 4% | 3,300 | |
| Total Tax Inclusive Of Cess | 85,800 |
So, the tax outgo on Rs 8,50,000 will be Rs 85,800. If Sumit chooses the new tax regime, his total tax outgo will be Rs 44,200
To help you avoid the above calculations, we have provided the tax liability under both regimes at different income levels in the table below. When you don’t avail deductions, the New Tax Regime works out to be better.
| Tax Paid Under Old And New Tax Regime for FY 2023-24 (in ₹) | |||
| Income | Old Regime | New Regime | Savings Under New Regime |
| 6,00,000 | 23,400 | 0 | 23,400 |
| 7,00,000 | 44,200 | 0 | 44,200 |
| 8,00,000 | 65,000 | 31,200 | 33,800 |
| 9,00,000 | 85,800 | 41,600 | 44,200 |
| 10,00,000 | 1,06,600 | 54,600 | 52,000 |
| Tax Paid Under Old And New Tax Regime for FY 2023-24 (in ₹) | |||
| 11,00,000 | 1,32,600 | 70,200 | 62,400 |
| 12,00,000 | 1,63,800 | 85,800 | 78,000 |
| 13,00,000 | 1,95,000 | 1,04,000 | 91,000 |
| 14,00,000 | 2,26,200 | 1,24,800 | 1,01,400 |
| 15,00,000 | 2,57,400 | 1,45,600 | 1,11,800 |
| 16,00,000 | 2,88,600 | 171600 | 117000 |
Scenario 2: When Deduction Under Section 80c & 80d (Nps) Is Claimed
In this scenario, we consider that the taxpayer takes Rs 1,50,000 and Rs 50,000 benefits under sections 80C and 80D, respectively. So, if you include the standard deduction of Rs 50,000, the taxpayer gets a total deduction of Rs 2.5 lakh.
If your income is below Rs 9 lakh, then the old tax regime is beneficial as you are saving more tax. As your income increases, you save more tax with the new regime.
| Tax Paid Under Old And New Tax Regime for FY 2023-24 (in ₹) | |||
| Income | Old Regime | New Regime | Savings Under New Regime |
| 6,00,000 | 0 | 0 | 0 |
| 7,00,000 | 0 | 0 | 0 |
| 8,00,000 | 23,400 | 31,200 | -7,800 |
| 9,00,000 | 44,200 | 41,600 | 2,600 |
| 10,00,000 | 65,000 | 54,600 | 10,400 |
| Tax Paid Under Old And New Tax Regime for FY 2023-24 (in ₹) | |||
| 10,00,000 | 65,000 | 54,600 | 10,400 |
| 11,00,000 | 85,800 | 70,200 | 15,600 |
| 12,00,000 | 1,06,600 | 85,800 | 20,800 |
| 13,00,000 | 1,32,600 | 1,04,000 | 28,600 |
| 14,00,000 | 1,63,800 | 1,24,800 | 39,000 |
| 15,00,000 | 1,95,000 | 1,45,600 | 49,400 |
| 16,00,000 | 2,26,200 | 171600 | 54600 |
Scenario 3: When Taxpayer Claims Deduction Under Section 80c, For Nps Investments, Interest On Home Loan And Health Insurance Premium
In this scenario, we have considered employees who claim deductions not only from their investments under section 80C and 80CCD (1B) worth Rs 2 lakh but also claim a deduction for interest paid on home loans (Rs 2 lakh) and health Insurance premiums (Rs 25,000).
Someone who can claim all the above deductions is better off with the old tax regime.
| Tax Paid Under Old And New Tax Regime for FY 2023-24 (in ₹) | |||
| Income | Old Regime | New Regime | Savings Under New Regime |
| 6,00,000 | 0 | 0 | 0 |
| 7,00,000 | 0 | 0 | 0 |
| 8,00,000 | 0 | 31,200 | -31,200 |
| 9,00,000 | 0 | 41,600 | -41,600 |
| 10,00,000 | 18,200 | 54,600 | -36,400 |
| 11,00,000 | 39,000 | 70,200 | -31,200 |
| 12,00,000 | 59,800 | 85,800 | -26,000 |
| 13,00,000 | 80,600 | 1,04,000 | -23,400 |
| 14,00,000 | 1,01,400 | 1,24,800 | -23,400 |
| 15,00,000 | 1,24,800 | 1,45,600 | -20,800 |
| 16,00,000 | 1,56,000 | 171600 | -15600 |
Conclusion:
The new tax regime offers lower tax rates, but you cannot claim deductions and exemptions. If you have a lot of deductions and exemptions, you may end up paying more taxes under the new tax regime. However, if you do not have many deductions and exemptions, the new tax regime may be beneficial for you. It is essential to evaluate both tax regimes and choose the one that suits you the best.