The finance minister presenting the budget for the financial year 2023-24, admitted that the basic exemption limit hasn’t changed since 2014. The previous budget sessions and action taken toward personal income tax has majorly supported an increase in the adoption rate of the new tax regime. It can be seen in the current year’s budget as well, as all the tax benefits are provided under the new tax regime.
READ MORE: Budget 2023: No income tax upto ₹7 lakh, standard deduction allowed under new tax regime; all details here
Let’s compare the new tax regime vs the old tax regime according to the benefits made available under the new tax regime:
Tax liability under the old tax regime
Before starting the comparison, you need to understand that the step taken is for middle-class families, whose income is less than 7 lakh. Let’s assume that your income is under the same, tax paid under the old tax regime will be:
|Slab (Rs)||Tax rate||Amount of tax (Rs)|
|Up to 2,50,000||NIL||0|
|2,50,000 - 5,00,000||5%||12,500|
|5,00,000 - 7,00,000||15%||30,000|
|Total tax payable||42,500|
Rebate under section 87A is available up to ₹5,00,000, hence, you will not be able to avail of the benefit of rebate under the old tax regime scheme in the above example.
Given that if you have any investment made which is eligible for deductions of Chapter IV under sections 80C to 80U, you have to submit documentary proof for the same while filing income tax returns, then you can avail deductions up to the income tax payable, which is ₹42,500 in the current case.
Tax slab under new tax regime
According to the budget presented by the finance minister Nirmala Sitaraman, the tax slab would be:
(if income is less than ₹7 lakhs)
(if income is more than ₹7 lakhs)
|Up to 3,00,000||NIL||NIL|
|3,00,000 - 6,00,000||NIL||5%|
|6,00,000 - 9,00,000||-||10%|
|9,00,000 - 12,00,000||-||15%|
|12,00,000 - 15,00,000||-||20%|
It means the rebate under the section 87A limit has increased from ₹5 lakhs to ₹7 lakhs. Previously, if your income was less than rs 5 lakhs, then only you do not have to pay the income tax due to rebate deduction. But, right now such a limit is increased to ₹7 lakhs, which directly means that you do not have to pay income tax at all if your income in the financial year is less than ₹lakhs.
In the current example, you do not need to file documentary proof to claim a deduction, as these deductions are not available under the new tax regime or do not have to do tax planning in advance to NIL your tax, because of an already given facility.
READ MORE: Budget 2023: A look at old vs latest income tax slabs under the new regime
Old Tax regime vs new tax regime, which one to choose?
There are only things you need to keep in the mind before opting for any of the tax regimes, which are as follows:
If you have already planned your taxes in advance, which is making your tax up to NIL or reducing your tax liability to the maximum extent.
Income tax liability comparison
You have to compare the tax liability before actually filing returns, choose the one under which tax benefits are the most.
Rebate u/s 87A
If your income is less than ₹7 lakhs rebate is available under the new tax regime in which you don't have to pay tax at all. Under the old tax regime, such a rebate limit is ₹5 lakhs.
Anushka Trivedi is a freelance financial content writer. She can be reached at anushkatrivedi.com