This post will aim to answer your query on whether you should choose the New Tax Regime or continue to stick with Old Tax Regime.
Tax Slabs – Old vs New
The New Tax Regime has now been made the “New” New Tax Regime. A look below at how the various tax slabs have been changed as part of the budget announcement of 2023. I have also created a detailed YouTube video to explain this.
Case 1 – Gross Salary less than ₹5 Lakh.
If your gross salary of less than ₹5 Lakh, then irrespective of whether you have any ongoing investments/exemptions, you have to pay Nil Tax in both Old as well as New Tax Regime.
Case 2 – Gross Salary between ₹5 Lakh and ₹7.5 Lakh
This year (Budget 2023-24) introduced standard deduction as part of the new Tax Regime making it more interesting (and lucrative?). Let’s have some insight on what would happen if your gross income is between ₹5 Lakh and ₹7.5 Lakh
In the new tax regime, thanks to the newly introduced standard deduction, your tax liability is ZERO for income upto ₹7.5 Lakh.
In case of old tax regime, , your tax applicability is as per the below table – if you choose to have nil investments eligible for tax deductions.
All the tax calculations on this page have been done using the calculator on this link.
Thus, if you have salary upyo ₹7.5 Lakhs, then going for the New Tax Regime is the right choice.
Case 3 – Investments eligible for deductions/exemptions – Nil
If you have no investments eligible for tax deductions, your tax applicability under the new and the old tax regime would look as under.
As we can clearly see from above that the amount of tax to be paid is greater in all cases of old Tax Regime thereby making the “New” New Tax Regime more lucrative if you have no exemptions to be claimed.
Case 4 – Investments eligible for deductions/exemptions – Upto ₹2 Lakh
If you have ongoing investments/expenses that are available for various deduction or exemptions amounting upto ₹2 Lakh, then the following will be your tax applicability in the the New Tax Regime as compared to Old Tax Regime.
The ongoing investments could be the PF being deducted as part of salary, Children School Fees being paid, Life Insurance Premiums, Health Insurance premium (under section 80D) or even the investments made under NPS.
It is abundantly evident from above picture that except for cases where the salary is ₹8.75 Lakh, the tax applicability is more for each of the case under the Old Tax Regime as compared to the New Tax Regime. Thus, if your salary is above ₹8.75 Lakh, then even if you have exemptions to be claimed to the tune of ₹2 Lakh, it would still make sense to opt for New Tax Regime.
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Case 5 – Investments eligible for deductions/exemptions – Upto ₹3.5 Lakh
For individuals with investments eligible for exemption upto ₹3.5 Lakh, which can typically happen in cases where an individual is exhausting their 80C limit of ₹1.5Lakh plus making ₹50,000 investment for NPS under 80CCD1(B) and also claiming some other deductions such as HRA or any reimbursements like Phone, Petrol etc.
The tax applicable under the New and Old Regimes has shown below for reference.
As can be seen, if you have salary greater than ₹14.75 Lakh, then given the above investment condition, it still makes sense to opt for New Tax Regime as the overall tax applicable comes to be lesser than the Old Tax Regime. Under ₹3.5 Lakh investment condition, benefit is only for those whose gross salary is less than ₹14.75 Lakh.
You can use this calculator to perform the calculations yourself.
Case 6 – Investments eligible for deductions/exemptions – Greater than ₹4 Lakh
If you have existing investments adding upto, ₹4 Lakh, then the applicable tax under Old Tax Regime is less than the New Tax Regime for each and every case where salary is less than ₹50 Lakh.
Thus, opting for the Old Tax Regime makes sense if your salary is upto ₹50 Lakh.
Summary
The New Tax Regime will give strong competition to the Old Regime, thanks to the restructuring of tax slabs and the surprise introduction of Standard Deduction. However, if you are wondering about the cases where Old Tax Regime is still beneficial, then you can use the below sheet for reference.
Let me know in comments below whether you are in favour of the New Income Tax Regime or not?
YouTube Video
A detailed YouTube Video has been created on this topic which you can watch via the link below
