Old Tax Regime Vs. New Tax Regime Which is better in 2023?

Author name: Neetu Mishra

Created date: 21-04-2023 04:28 AM

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Currently, there are two income tax slabs from which a salaried individual has to choose one every year. The income tax rates for these slabs are different. The old income tax regime continues with the existing tax exemptions and deductions. The new income tax regime offers lower income tax rates and more slabs with no option of availing tax exemptions and deductions.

The Finance Minister has proposed new income tax slabs that will reduce the middle-income earner group’s overall tax burden in FY 2023–2024.

The amended income tax rates under the new tax law for the financial year 2023–24 (AY 2024-25)

In a major boost to the new income tax regime and to make it more pleasing to the middle-class common individual, the government has announced significant changes to the new income tax regime. The basic exemption limit in the new tax regime has been increased to INR 3 lakh, which was INR 2.5 lakh earlier. In addition, a tax rebate on income earned up to INR 7 lakh, which was INR 5 lakh earlier under section 87A

All the deductions under Chapter VI-A other than deduction under section 80CCD (1B) & standard deduction of Rs 50,000 will not be eligible which means deduction of Rs. 1, 50,000/- in respect of long-term savings like life insurance scheme, contribution to PF, PPF and NPS, NSC, long term fixed deposits etc. shall not be available in case the individual opts to pay tax at new rates.

Deduction on account of donation under section 80G, deduction on account of interest on loan taken for higher education under section 80E, deduction on account of interest on saving bank account of Rs.10, 000/- under Section 80TTA shall also not be available.

The amended income tax rates under the new tax law for the financial year 2023–24 (AY 2024-25)

The changes announced for FY24 make the new tax regime a compelling option for two sets of people. It is an obvious choice for those with income below ? 7 lakh (or ? 7.5 lakh for those with salary income as they avail an additional ? 50,000 as Standard Deduction)

Income Tax Old vs New Tax Regime: Which Scheme is More Beneficial

Both systems have their own sets of pros and cons. The old system has many exemptions and deductions under numerous sections – availing a few of these required people to invest in tax-saving investment options, which helped inculcate a good habit of investing. On the other hand, the new system gives people more flexibility and tries to simplify the process.

It also varies based on which slab you are in as well. However, since the system is new, it makes sense to consult a competent tax expert who can suggest the optimal tax-saving route for you.

Finance Minister Nirmala Sitharaman in her budget has said that gradually the exemptions and deductions will be reviewed and reduced in number, as the government wants a simple Income tax system in the country. Whether or not the new system is received well after we compare old vs new tax regimes in the upcoming financial year, will say a lot about the tax laws that may get implemented in the future.

It is also to be kept in mind that the choice can be changed every year according to you. You can now choose a tax regime out of the old or new or new as per your convenience annually. For your convenience, you can download the free calculator and compare your tax in old vs new regime. As always, feel free to contact us for expert advice on Income Tax Return