- Opening : Mon-Fri 08:00 - 17:00
- About us
- Our Team
- Our Services
- Contact Us
Income Tax Regime: Old vs New
May 18, 2023
As Financial Year 2022-23 came to a close, we have been taxed with the responsibility of choosing our tax regime between the old and the new. So, which one are you opting for? Before picking up your regime some facts and figures that can help you in this decision.
For a basic clarification on what Income Tax actually is and what is the significance, we’ll briefly look into the definition of Income Tax and how it works.
The government imposes income tax on the earnings of individuals, businesses, and other entities within a country. This tax is categorized as a direct tax, wherein the taxpayer is accountable for remitting the tax amount to the government.
The income tax system is based on a progressive tax rate structure, which means that the tax rate increases as the income level of the taxpayer increases. This ensures that those who earn more pay a higher percentage of their income in taxes than those who earn less.
Income tax is levied on various types of income, such as salaries, wages, business income, capital gains, dividends, interest, and rental income. There are also certain deductions and exemptions available that can reduce the taxable income of the taxpayer.
The collection of income tax is done by the government through its designated tax collection agency, which can differ from one country to another. The revenue collected through this tax is utilized by the government to finance various programs and services, including education, healthcare, social welfare, infrastructure development, and defense.
Failing to pay income tax or filing incorrect tax returns can result in penalties and legal consequences. Therefore, it is essential for individuals and businesses to comply with the tax laws and regulations in their respective countries.
Analysing the New and Old Income Tax Regime
Both tax regimes have their advantages and disadvantages. To decide which regime will be more favorable for you, first, let’s check out some essential points of the New IT regime. Then we’ll list the deductions and exemptions in both regimes for you to see and compare.
New IT regime
- No income tax is applicable for individuals earning up to Rs.3 lakh.
- Individuals earning above Rs.3 lakh and up to Rs.6 lakh are subject to an income tax of 5%.
- Individuals earning above Rs.6 lakh and up to Rs.9 lakh are subject to an income tax of 10%.
- Individuals earning above Rs.9 lakh and up to Rs.12 lakh are subject to an income tax of 15%.
- Individuals earning above Rs.12 lakh and up to Rs.15 lakh are subject to an income tax of 20%.
- Individuals earning above Rs.15 lakh and up to Rs.20 lakh are subject to an income tax of 25%.
- Individuals earning above Rs.20 lakh are subject to an income tax of 30%.
- The new tax structure is the default option for taxpayers, but they can choose to switch to the old tax regime if they prefer.
- The new tax structure includes a standard deduction of Rs.50,000.
- The surcharge rate under the new tax structure has been revised, with the highest surcharge rate reduced from 37% to 25%.
- The new tax structure is effective from 1st April 2023.
To encourage taxpayers to adopt the new tax regime, the Indian government introduced some important changes in Budget 2023. These changes are:
- The new tax regime has increased the threshold for full tax rebate to ₹7 lakhs, compared to ₹5 lakhs in the old tax regime.
- The tax slabs have been updated, with lower tax rates for some income groups.
- The default option for income tax deduction by employers and the Income Tax Department is the new tax regime.
- The new tax regime provides fewer exemptions and deductions than the old regime, but it has increased the standard deduction.
- Taxpayers have the liberty to select either the old or new tax regimes according to their preference. Nevertheless, if a taxpayer chooses to go with the new tax regime, they will have to relinquish certain exemptions and deductions that were available in the old tax regime.
Deductions and exemptions allowed/not allowed in the new tax regime
- Leave Travel Allowance (LTA)
- House Rent Allowance (HRA)
- Deduction under Section 80C, 80CCC, and 80CCD: Investments made under these sections ([80C] PPF, ELSS, NSC, Tax-saving FD, SCSS, SSY, Life Insurance Premium, and principal repayment of home loan, stamp duty, and registration fees, [80CCC] pension plan investments, [80CCD] investments in the National Pension System (NPS)) for claiming a deduction of up to Rs. 1.5 lakh are not available in the new tax regime.
- Deduction under Section 80D: Premiums paid towards medical insurance for self, spouse, and dependent children are not available in the new tax regime.
- Deduction under Section 80E: Interest paid on education loans is not available in the new tax regime.
- Deduction under Section 80TTA: Interest earned on savings bank account deposits up to Rs. 10,000 is not available in the new tax regime.
- Standard Deduction: An individual can claim a basic deduction of Rs 50,000 on salary income as a standard deduction.
- Deduction under Section 80 CCD (2): The employer’s contribution to the Tier-I NPS account can be deducted under Section 80 CCD (2).
- Family Pension Income Deduction: Deduction under Section 57 (iia) of family pension income.
- Agniveer Corpus Fund Deduction: To claim a deduction, taxpayers can utilise Section 80CCH (2) by paying or depositing an amount into the Agniveer Corpus Fund.
Deductions and exemptions allowed/not allowed in the old tax regime
- Standard deduction: A standard deduction of Rs. 50,000 was allowed for salaried individuals.
- Section 80 CCD (1B): An additional deduction of up to Rs. 50,000 was allowed for the deposited amount in the National Pension System (NPS) account.
- Section 80TTA: This section allows individuals and Hindu Undivided Families to claim a maximum deduction of Rs. 10,000 against the interest earned from their savings account with a bank, cooperative society, or post office.
- Section 80D: It allowed a deduction on health insurance premiums.
- Section 80C: Investments made in specified instruments, including Public Provident Fund (PPF), Employee Provident Fund (EPF), National Savings Certificate (NSC), and life insurance premiums, were eligible for a deduction of up to Rs. 1.5 lakh.
- Section 80CCC: A deduction of up to Rs. 1.5 lakh was allowed for contributions to certain pension funds.
- Section 80CCD: A deduction of up to 10% of salary (for salaried individuals) or 20% of gross total income (for self-employed individuals) was allowed for contributions to the NPS scheme.
- Leave Travel Allowance (LTA): LTA is a component of the salary package that an employee can use to cover their travel expenses during leave. However, it is not allowed as an exemption under the old tax regime.
- House Rent Allowance (HRA): The Housing Rent Allowance (HRA) is a constituent of an employee’s salary package that can be utilized to pay for their house rent expenditures. Nevertheless, it is not accepted as an exemption under the prior tax structure.
- Deduction for Interest on Housing Loan: Taxpayers are eligible to claim a deduction for the interest paid on a housing loan only if the property is rented out, under the old tax regime. However, this deduction is limited to a maximum of Rs. 2 lakh per year and is not applicable for self-occupied properties.
Key Differences between Old and New Income Tax Regime
- Tax Slabs: The number of tax slabs has been decreased from six to five in the new tax regime. Moreover, the minimum taxation threshold is higher under the new regime, and individuals earning an annual income of Rs. 3 lakh or less are not liable to pay any taxes, which is higher compared to the Rs. 2.5 lakh threshold under the old regime.
- Tax Rates: The new tax regime features reduced tax rates compared to the old regime, but it has certain conditions. If taxpayers choose the new regime, they will have to sacrifice exemptions, deductions, and reliefs available in the old regime. However, the new regime provides a complete tax rebate for income up to ₹7 lakhs, whereas the threshold was ₹5 lakhs under the old regime.
- Benefit for Middle Class: The new tax regime can benefit middle-class taxpayers with a taxable income up to Rs 15 lakh, while the old regime is better suited for high-income earners.
Income Tax Regime to Opt for: New Scheme vs Old Scheme
Now that we are done examining the new income tax regime and mapping the differences between the two, let’s recap a few important factors that can be principal in determining the regime that’s most suitable for you.
- The new tax regime provides reduced tax rates, but fewer deductions and exemptions compared to the previous tax regime.
- To claim the benefit of standard deduction under section 16 (ia) of the IT Act, salaried individual taxpayers with a total income of up to Rs. 7.5 lakh may choose the new tax regime for FY 2022-23 (AY 2023-24).
- The old tax regime allows for several tax deductions and exemptions, which can help taxpayers save on taxes. For example, if a taxpayer has a home loan and avails of the deduction under section 80C of up to Rs. 1.5 lakh, the old tax regime may be more beneficial.
- Under the old tax regime, individuals with an income of less than Rs. 5 lakhs are eligible for tax deductions under section 87A.
It’s advisable to evaluate your financial situation and choose the tax regime that suits you best. Taxpayers with a high income who use the deductions to their full advantage may advantage better under the old tax regime. Whereas someone with a low income and few deductions and exemptions may benefit from the new tax regime. It’s best to use an online tax calculator and check your tax liabilities under both.
Negotiating income tax or making a decision on the choice of which regime is right for you can seem daunting. Consulting an expert can give you clarification and make the decision less stressful.
Which Tax Regime Should I Choose?
Choosing the right tax regime depends on your individual financial situation and tax liability. The old tax regime provides more deductions and exemptions, while the new tax regime has lower tax rates but fewer deductions and exemptions.
If you have a lot of deductions and exemptions, it may be beneficial to stick with the old tax regime. However, if you do not have many deductions and exemptions, the new tax regime may be more beneficial.
To determine which tax regime is best for you, you should calculate your tax liability under both regimes and then make a decision based on which option results in lower tax liability. It is also important to consider your long-term financial goals and the impact of choosing one regime over the other on your overall financial plan.
Consulting a tax professional or financial advisor is recommended to make an informed decision on which tax regime to choose.
Can I Switch Between the Old and New Regime?
Taxpayers are allowed to switch between the old and new tax regimes every fiscal year, except for those with business income. Taxpayers with business income are not permitted to switch between the two regimes each year. They can only opt for the new tax regime once.
Salaried taxpayers can choose the new tax regime at the beginning of the financial year 2023-24 and intimate their employer. The employee cannot change their choice anytime during the financial year.
Do I Need to Declare My Choice of Regime Every Year?
Yes, it is mandatory for employees to declare their choice of tax regime every year. All employees will be under the new tax regime, and it has become the default option from FY 2023-24. If employees fail to declare their choice, they will be deemed to have chosen the new tax regime. Therefore, it is essential to declare your choice of tax regime each year.
Can I change my ITR form every year?
Yes, salaried individuals can change their ITR (Income Tax Return) form every year depending on their income sources and other relevant factors.
How Can I Calculate My Tax Liability Under the Two Regimes?
- Determine your gross taxable income for the financial year.
- Identify eligible deductions and exemptions under the old regime.
- Use applicable slab rates to calculate tax liability under the old regime.
- Calculate tax liability under the new regime using applicable slab rates.
- Compare tax liability under the old regime with the new regime.
- Opt for the new regime if tax liability is lower.
- Note that many old regime deductions and exemptions are not available under the new regime.
To accurately calculate your tax liabilities, it is recommended to use an online tax calculator. Seeking advice from a tax professional can also provide you with a better understanding and calculation.
Have Any Question?
- (+91) 9899020497
Income Tax Regime: Old vs New -? ›
9 lakh is taxed at 10%, while income between Rs. 9 lakh and Rs. 12 lakh is taxed at 15% under the new system. As per the budget announcement 2023, tax rebate is increased to for new tax regime if the total income is less than Rs 7 lakh.What is difference between new and old tax regime? ›
The major difference between both of these tax regimes is income tax slab rates as well as the ability to claim exemptions and deductions. Even 2 years post the introduction of the New tax regime under section 115BAC, the majority of taxpayers filed their ITR under the old tax regime.What are the exemptions for the old tax regime? ›
The old tax regime allows an individual to save income tax via various deductions and tax exemptions such as sections 80C, 80D, 80CCD(1b), 80TTA, HRA, and LTA.What is the latest income tax slab for old regime? ›
|Income of the assessee||Rate of Tax under Old Regime for FY 22-23 (AY 23-24)||New Regime Slab Rates for FY 22-23 (AY 23-24)|
|Rs. 5,00,001 to Rs 7,50,000||20%||10%|
|Rs 7,50,001 to Rs 10,00,000||20%||15%|
|Rs 10,00,001 to Rs. 12,50,000||30%||20%|
|Rs. 12,50,001 to Rs. 15,00,000||30%||25%|
Is it possible to claim 80C deductions and choose new income tax regime? No, unlike the old/existing tax rate regime, the new tax rate regime does not enable many deductions and exclusions. If the taxpayer chooses the New regime's concessionary tax slab rates, deductions under Section 80C are not available.What is the tax rate for 40 lakh salary in India? ›
If you make ₹ 4,000,000 a year living in India, you will be taxed ₹ 1,533,000. That means that your net pay will be ₹ 2,467,000 per year, or ₹ 205,583 per month. Your average tax rate is 38.3% and your marginal tax rate is 43.2%.When can I switch back to old tax regime? ›
The tax regime can be changed only once in their lifetime by submitting an application in prescribed Form 10IE, on or before the due date of filing the income tax return under Section 139 (1) of the Act.Who paid the most taxes under the old regime? ›
The taxation system under the Ancien Régime largely excluded the nobles and the clergy from taxation while the commoners, particularly the peasantry, paid disproportionately high direct taxes.How much is 1 tax exemption worth? ›
A personal exemption was a specific amount of money that you could deduct for yourself and for each of your dependents. Regardless of your filing status is, you qualify for the same exemption. For the tax year 2017 (the taxes you filed in 2018), the personal exemption was $4,050 per person.How many exemptions should I claim? ›
If you are single and have one job, or married and filing jointly then claiming one allowance makes the most sense. An individual can claim two allowances if they are single and have more than one job, or are married and are filing taxes separately.
How much income is tax free in India? ›
|Income Tax Slab||Income Tax Rates Applicable for FY 2023-24 as per the new regime for HUF and all Individuals|
|<₹ 3,00,000||No Tax|
|₹ 3,00,001 to ₹ 6,00,000||5%|
|₹ 6,00,001 to ₹ 9,00,000||10%|
|₹ 9,00,001 to ₹ 12,00,000||15%|
Section 80C provides deductions on various investments up to ₹ 1.5 lakh per year from your taxable income. In comparison, Section 80CCC provides a deduction of up to ₹ 1.5 lakh per annum for the contribution made by an individual towards specified pension funds.What is taxable income in India? ›
Taxable Income in India
Taxable income is the income of an individual or organization, minus any allowable tax deductions. It is the amount of income an entity makes every year upon which the government levies taxes. In simpler words, it is the amount of one's income which is subject to income tax.
- Standard Deductions u/ Section 80TTA and Section 80TTB.
- Deductions u/ Section 80C, 80D, 80E, 80CCC, 80CCD, 80DD, 80DDB, 80EE, 80EEA, 80G, etc. ...
- Professional Tax.
- Entertainment Allowance on Salaries.
- House Rent Allowance (HRA)
- Leave Travel Allowance (LTA)
Only salaried individuals can opt out of any of the regimes every year. Also, the taxpayer is free to choose a different regime at the time of filing their ITR which is different from the one they chose for TDS deduction with the employer.What is the 80D deduction? ›
Section 80D includes a deduction of Rs 5,000 for any payments made towards preventive health check-ups. This deduction will be within the overall limit of Rs 25,000/Rs 50,000, as the case may be. This deduction can also be claimed either by the individual for himself, his spouse, dependent children or parents.How much is 85000 salary after taxes in India? ›
If you make ₹ 85,000 a year living in India, you will be taxed ₹ 10,200. That means that your net pay will be ₹ 74,800 per year, or ₹ 6,233 per month. Your average tax rate is 12.0% and your marginal tax rate is 12.0%.Is 50 lakhs a good salary in India? ›
If you earn more than 50 lacs a year you're in the top 0.3% of India. Above 25 lacs, you're in the top 1.2% of India. Only 3.2% of Indians earn above 15 lacs a year.How much tax is deducted for 1000000 salary in India? ›
If you make ₹ 1,000,000 a year living in India, you will be taxed ₹ 238,335. That means that your net pay will be ₹ 761,665 per year, or ₹ 63,472 per month. Your average tax rate is 23.8% and your marginal tax rate is 36.8%.How do I file my income tax return? ›
- Step 1: Calculation of Income and Tax.
- Step 2: Tax Deducted at Source (TDS) Certificates and Form 26AS.
- Step 3: Choose the right Income Tax Form.
- Step 4: Download ITR utility from Income Tax Portal.
Who pays the most taxes in USA? ›
The highest-earning Americans pay the most in combined federal, state and local taxes, the Tax Foundation noted. As a group, the top quintile — those earning $130,001 or more annually — paid $3.23 trillion in taxes, compared with $142 billion for the bottom quintile, or those earning less than $25,000.What was the highest taxes paid in US history? ›
The top individual marginal income tax rate tended to increase over time through the early 1960s, with some additional bumps during war years. The top income tax rate reached above 90% from 1944 through 1963, peaking in 1944 when top taxpayers paid an income tax rate of 94% on their taxable income.Is it better to claim 1 or 0? ›
By placing a “0” on line 5, you are indicating that you want the most amount of tax taken out of your pay each pay period. If you wish to claim 1 for yourself instead, then less tax is taken out of your pay each pay period.Should I claim 1 or 0 if single? ›
Single. If you are single and do not have any children, as well as don't have anyone else claiming you as a dependent, then you should claim a maximum of 1 allowance. If you are single and someone is claiming you as a dependent, such as your parent, then you can claim 0 allowances.Is it better to claim 2 exemption or 0? ›
Claiming 0 Allowances on your W4 ensures the maximum amount of taxes are withheld from each paycheck.Is it OK to claim 10 exemptions? ›
If you take 10 exemptions, then you will have very little money taken out of your check for federal income taxes. If you have 10 dependents, then you simply will not get a tax refund at the end of the year. But if you do not have 10 dependents, then you will have a tax bill to pay.What happens if you claim too many exemptions? ›
Claiming fewer allowances on Form w-4 will result in more tax being withheld from your paychecks and less take-home pay. This might result in a larger tax refund. On the other hand, claiming too many allowances could mean that not enough tax is withheld during the year.Why do I always owe taxes when I claim 0? ›
There are a few reasons why you would still owe money if you have claimed zero on your tax forms. Some reasons are if you have additional income, have a spouse that earns income or if you earn bonuses or commissions.Do all Indians pay income tax? ›
2.5 Lakhs annually (which cover the overwhelming majority of the country) are exempt for paying any income tax. Those earning between Rs. 2.5 Lakhs and 5 Lakhs are subject to 5 per cent tax; those earning between 5 Lakhs and 10 lakhs rupees, 20 percent tax; and those above 10 lakhs, a 30 percent rate.What is the maximum income that is not taxable? ›
Depending on your age, filing status, and dependents, for the 2022 tax year, the gross income threshold for filing taxes is between $12,550 and $28,500. If you have self-employment income, you're required to report your income and file taxes if you make $400 or more.
Do Indians have to pay income tax? ›
Members of a federally recognized Indian tribe are subject to federal income and employment tax and the provisions of the Internal Revenue Code (IRC), like other United States citizens. Determinations on taxability must be based on a review of the IRC, treaties and case law.What is the limit of Section 80D? ›
Section 80D allows an individual to claim tax benefit for preventive health check-up of Rs 5,000. This tax-benefit is available within the maximum deduction limit of Rs 25,000 or Rs 50,000, as the case maybe.Which 80C is best? ›
|Public Provident Fund (PPF)||7.1% currently||15 years|
|Sukanya Samriddhi Yojana||7.60%||21 years|
|National Savings Certificate||6.80%||5 years|
|Senior Citizen Saving Scheme||7.40%||5 years|
- Interest Income Generated from Savings Account Deposits.
- Interest Component Paid Towards Education Loan.
- Sum Assured on Maturity of Life Insurance Plans.
- Expenses Incurred Towards Treatment of a Disabled Person.
- House Rent Allowance (HRA)
- Leave Travel Allowance (LTA)
- Employee Contribution to Provident Fund (PF)
- Standard Deduction.
- Professional Tax.
- Exemption of Leave Encashment.
- Exemption Under Section 89(1)
- Exemption from the Receipt Upon Opting for Voluntary Retirement.
NRI or not, any individual whose income exceeds Rs 2,50,000 is required to file an income tax return in India.What are 2 deductions that are mandatory? ›
Mandatory deductions: Federal and state income tax, FICA taxes, and wage garnishments.What is included in new tax regime? ›
Exemptions under new tax regime
Gratuity received from employer up to a maximum amount of ₹ 20 lakh. Amount received from Life Insurance Policy on maturity under Section 10(10D). Employer contribution in NPS or EPF up to 12% of salary and interest on EPF up to 9.5% p.a.
You cannot claim the standard deduction if: You are married and file separately from a spouse who itemizes deductions. You were what the IRS calls a “nonresident alien” or a “dual-status alien” during the tax year. You file a return for less than 12 months due to a change in your accounting period.What is the 10D tax? ›
What is Section 10 (10D) of Income Tax Act? A person can enjoy tax exemption on the sum assured and accrued premium (if any) earned through their term life insurance policy claim under Section 10 (10D) of Income Tax Act, 1961 - that is maturity or death benefit.
Can I claim both 80C and 80D? ›
80D is a tax deduction available to individuals and HUFs for medical insurance premiums paid for self, spouse, children, and dependent parents. This deduction is available in addition to the 80C deduction.Is 80C applicable in new tax regime? ›
No, unlike the old/existing tax rate regime, the new tax rate regime does not enable many deductions and exclusions. If the taxpayer chooses the New regime's concessionary tax slab rates, deductions under Section 80C are not available.Are medical bills tax deductible? ›
You can deduct on Schedule A (Form 1040) only the part of your medical and dental expenses that is more than 7.5% of your adjusted gross income (AGI). This publication also explains how to treat impairment-related work expenses and health insurance premiums if you are self-employed.How much tax will I pay if my salary is 100000 in India? ›
If you make ₹ 100,000 a year living in India, you will be taxed ₹ 12,000. That means that your net pay will be ₹ 88,000 per year, or ₹ 7,333 per month. Your average tax rate is 12.0% and your marginal tax rate is 12.0%. This marginal tax rate means that your immediate additional income will be taxed at this rate.What amount of salary is taxable in India? ›
|Tax slab||Tax rate as per old regime|
|0 - 2,50,000||Nil|
|2,50,000 – 5,00,000||5 %|
|5,00,001 – 10,00,000||20 %|
|10,00,001 & above||30 %|
|Income Slab||Applicable Tax Rate|
|Above Rs 3 lakh and up to Rs 6 lakh||5%|
|Above Rs 6 lakh and up to Rs 9 lakh||10%|
|Above Rs 9 lakh and up to Rs 12 lakh||15%|
|Above Rs 12 lakh and up to Rs 15 lakh||20%|
However, Section 80C has a cap of only Rs. 1.5 lakh for deductions. Section 80D, on the other hand, provides a deduction on insurance policies up to a certain limit. For further tax saving options, taxpayers can take note of some other sections.Can I claim medical bills on my taxes? ›
You can only include the medical expenses you paid during the year. You must reduce your total deductible medical expenses for the year by any amount compensated for by insurance or any other reimbursement of deductible medical expenses, and by expenses used when figuring other credits or deductions.Can I claim medical expenses on my taxes in India? ›
Under section 80D, deduction can be claimed for medical insurance premium for both top-up health plans and critical illness plans by any individual or Hindu Undivided Families (HUF).Which deductions are not available in new tax regime? ›
The new tax regime provides a lower tax rate but removes several deductions that are otherwise available under the old tax regime. For example, it does not allow you deductions on long term savings, health insurance such as PPF, house rent allowance or home loan.