Every taxpayer must compare the rules in the old vs new tax regime to make a wise choice for their finances. The Union Budget 2023 announced the new tax regime with more simplified rates and fewer tax exemptions. On the other hand, the old regime has traditional slabs and several tax benefits.
Reading this article will help you learn about the differences between the new tax regime and the old tax regime and which one you should choose for your financial benefit.
The new tax regime was introduced in the Union Budget 2023. It outlined new tax slabs under Section 115 BAC of the Income Tax Act, 1961, for individuals, businesses, and Hindu Undivided Families (HUFs). The key features of the new regime are:
The tax exemption limit in the new tax regime is ₹3,00,000 instead of ₹2,50,000.
The old regime allows a tax rebate of ₹5,00,000 under Section 87A. The new tax regime has increased this rebate limit to ₹7,00,000.
The old taxation system existed until the new tax regime was introduced. This regime allowed more than 70 deductions and exemptions, such as HRA and LTA. These exemptions and deductions help to lower taxable income and reduce tax payments. One of the most advantageous provisions of the old regime is Section 80C deductions, which allow you to reduce your taxable income by ₹1,50,000.
The key features of the old regime are:
There are 5 tax slabs in the old regime, starting from ₹2,50,000, and ranging from 0 to 30%.
The old tax regime provides more than 70 deductions and exemptions. Claiming these deductions helps you reduce your total taxable income.
Here’s a comparison between the income rates for the old regime vs new regime (FY 2022-23 vs FY 2023-24).
| Old Regime Income Tax Slab | New Regime Income Tax Slab | Income Tax Rates |
|---|---|---|
| ₹0 - ₹2,50,000 | ₹0 - ₹3,00,000 | Nil |
| ₹2,50,000 - ₹5,00,000 | ₹3,00,000 - ₹6,00,000 | 5% |
| ₹5,00,000 - ₹7,50,000 | ₹6,00,000 - ₹9,00,000 | 10% |
| ₹7,50,000 - ₹10,00,000 | ₹9,00,000 - ₹12,00,000 | 15% |
| ₹10,00,000 - ₹12,50,000 | ₹12,00,000 - ₹15,00,000 | 20% |
| ₹12,50,000 - ₹15,00,000 | - | 25% |
| >₹15,00,000 | > ₹15,00,000 | 30% |
Let’s assume you earn ₹18,00,000 per annum. The tax calculations under the old and new regimes will be as follows:
| Particulars | Tax under the old regime | Tax under the new regime |
|---|---|---|
| Salary | ₹18,00,000 | ₹18,00,000 |
| Standard deductions | ₹50,000 | - |
| Deductions | ₹3,75,000 | - |
| Taxable income | ₹13,75,000 | ₹18,00,000 |
| Total tax | ₹2,25,000 | ₹2,77,500 |
| Cess @ 4% | ₹9,000 | ₹11,100 |
| Total taxes (inclusive of cess) | ₹2,34,000 | ₹2,88,600 |
Many taxpayers cannot choose between the new regime vs old regime. This decision depends on individual preferences, age, income, and financial conditions. If you are interested in simpler tax filing and minimal deductions, opt for the new income tax system. Non-salaried taxpayers can benefit the most from it since they are not qualified for Section VIA exemptions and deductions.
Conversely, the old tax system allows for several deductions, making it more suitable for senior citizens who mostly earn their income from interest. The old regime also encourages savings.
If you want to claim deductions when filing your income tax returns, you can invest in PNB MetLife insurance plans to enjoy tax deductions on the premiums you pay and also enjoy financial security for yourself and your loved ones.
The most prominent old regime vs new regime difference is the option to claim deductions under Section 80C. Unlike the old regime, the new regime does not allow Section 80C deductions.
The new tax regime is apt for individuals with less than ₹3.75 lakh in deductions.
Disclaimer:
The aforesaid article presents the view of an independent writer who is an expert on financial and insurance matters. PNB MetLife India Insurance Co. Ltd. doesn’t influence or support views of the writer of the article in any way. The article is informative in nature and PNB MetLife and/ or the writer of the article shall not be responsible for any direct/ indirect loss or liability or medical complications incurred by the reader for taking any decisions based on the contents and information given in article. Please consult your financial advisor/ insurance advisor/ health advisor before making any decision.
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