Old Personal Tax Regime Vs New Tax Regime: Here’s The Choice Made Easier

The government also proposed to reduce tax slabs from six to five and increase the tax exemption limit. 2.5 Lakh onwards 3 lakhs. To encourage more taxpayers to adopt the new regime, the budget also proposes to introduce a 50,000 standard deduction, which till now was available only under the old regime.

The new tax slab rates to be implemented from 2023-24 in the new tax regime are: 3 lakh – Nil; From 3 lakhs onwards 6 lakh – 5%; From 6 lakhs – 9 lakhs – 10%; From 9 lakhs – 12 lakhs – 15%; from 12 lakhs 15 Lakh – 20% and above 15 lakhs – 30%.

The new income tax regime is also set to become the default regime from FY 2023-24.

While paying taxes under the new regime, Section 80C (Maximum 1.5 lakh) which can be claimed by investing in specified financial products, Section 80D for health insurance premium paid; Exemption from House Rent Allowance and Leave Travel Allowance.

While the old tax regime allows deduction of such amount from total income, higher tax rates lead to higher tax liability. The old tax regime currently has lower tax slabs: no tax on income up to 2.5 lakhs. income of 2.5–5 lakh is taxed at 5% (with tax exemption), 5- 10 lakh 20% and above 10 lakhs at 30%.

Choosing between the old and the new tax regime depends on the number of deductions and exemptions one is availing in the old tax regime.

We tried to simplify this by arriving at a break even amount for each income level (see GFX) for a salaried individual under the age of 60, which can be used to choose between the two tax regimes.

break even threshold

Simply put, if the total amount of deductions and exemptions you are eligible to claim under the old tax regime exceeds the break even limit matching the level of income, then you are better off sticking to the old tax regime Will happen. Otherwise, going to the new tax system is beneficial.

At the break even amount, there will be no difference in tax liability between the two tax regimes.

For example, if your gross total income is 12 lakh per annum and tax-break amount 3.5 lakh (see GFX), your tax liability under both the regimes will be the same, which is 82,500. However, if the total tax-break amount is less than 3.5 lakhs, your tax liability under the new tax regime will be lower as compared to the old tax regime.

Note that the above breakeven limit includes the standard deduction. 50,000 which is now available to taxpayers under both the regimes.

The choice of tax regime will be straightforward for people with total income up to 7.5 lakh per annum. Budget 2023 has increased the maximum exemption under 87A from 12500 25000 under the new tax regime. Thus, whose income is up to 7.5 lakh will not have to pay any tax under the new system.

The math is simple even for those with a total income of 15.5 lakh and above. If the total number of tax breaks is greater than 4.25 lakh, the tax liability would be lower under the old tax regime. if less than deduction 4.25 lakhs, the new system would be better.

Having said that, the equation is reversed for high-net-worth individuals, whose gross is higher than their total income. 5 crore per annum. Budget 2023 reduced the surcharge rate applicable to this category of persons from 37% to 25%. As a result, the marginal tax rate comes down from 42.7% (including surcharge and cess) to 39%. But this is only for those who are in the new tax regime. Thus, it is worthwhile for individuals