Union Budget-2023: New Tax Regime vs. Old Tax Regime – Which one is better?

 

 

Though the concept of a new tax regime without any deductions & exemptions was introduced 3 years ago, it is yet not so popular. Numbers of taxpayers opting for the new tax regimes were much less as the old tax regime was more beneficial to the taxpayers. Union Budget 2023 has proposed remarkable changes in the new tax regime which may tempt people to shift to the new tax regime. Let us know the key changes proposed in the New Tax Regime [U/s 115BAC] with effect from FY 2023-24 (AY 2024-25):

1. New Tax Regime to be default Regime:
   The new tax regime has been made the default tax regime for everyone. Earlier, a person opting for a new tax regime was required to opt for it by filing the declaration form. Now, the person opting for the old tax regime would be required to do so.
2. Different Basic Exemption Limit:
   The basic exemption limit as well as tax rate & slab is different under the old regime vis a vis the new tax regime. The basic exemption limit under the old regime for non-senior citizens is Rs. 2.50 Lakh whereas it will be Rs. 3 Lakh under the new regime.
3. Increase of Tax Rebate limit to Rs. 7 Lakh:
   Higher tax rebate is proposed for the taxpayers opting for new tax regime. The tax rebate u/s 87A has been raised from Rs. 12,500/- to Rs. 25,000/- for all the taxpayers opting for the new tax regime. In short, now all individuals earning up to Rs. 7 Lakh are exempt from paying tax & will not be required to pay a single penny under the new tax regime. Since the limit of rebate has been increased and not the basic exemption limit, there is no immunity from the process of filing income tax return for such taxpayers.

4. Tax Rate and Slab under the New Tax Regime:
   The tax rate and slab under the new tax regime is proposed as under:

Total Income (Rs)	Rate
Up to 3,00,000	Nil
From 3,00,001 to 6,00,000	5%
From 6,00,001 to 9,00,000	10%
From 9,00,001 to 12,00,000	15%
From 12,00,001 to 15,00,000	20%
Above 15,00,000	30%

 

5. Benefit of Standard Deduction to be extended to New Tax Regime:
   Earlier, the benefit of standard deduction was not available to the salaried taxpayers opting for the new tax regime. To make it more appealing, the benefit of the standard deduction of Rs. 50,000/- & deduction from family pension up to Rs. 15,000/- has been extended to the taxpayers opting for the new tax regime also. As a result, the salaried taxpayers with income up to Rs. 7.50 Lakh will have nil tax liability.

6. Reduction in Highest rate of Surcharge from 37% to 25%:
   The highest surcharge rate for individuals in the new tax regime is also proposed to be reduced from 37% to 25%. As a result of this, the maximum marginal rate for individuals shall be reduced from 42% to 39%. This will be another motivation to High net worth Individual (HNI) to opt for the new tax regime.

7. Whether the old regime could still be better?
   Though there are numerous benefits & motivation for the taxpayers to opt for the new tax regime, still the old regime could be better in some cases.  Here is a chart which summarizes the minimum amount of exemption / deduction above which the taxpayers may think of remaining in the old tax regime.

TAX LIABILITY UNDER NEW TAX REGIME AS PER FINANCE BILL – 2023
Gross Total Income		Tax		Rebate		Cess		Total Tax	Tax under the Old Regime                       ….	MINIMUM AMOUNT OF Exemption/ Deduction after which the old Regime will be better
I		IV		V		VI		VII	VIII	VIII
500,000		10,000		10,000		–		–	–	–
600,000		15,000		15,000		–		–	33,800	100,000
650,000		20,000		20,000		–		–	44,200	150,000
700,000		25,000		25,000		–		–	54,600	200,000
800,000		35,000		–		1,400		36,400	75,400	187,500
900,000		45,000		–		1,800		46,800	96,200	237,505
1,000,000		60,000		–		2,400		62,400	117,000	262,504
1,100,000		75,000		–		3,000		78,000	148,200	287,503
1,200,000		90,000		–		3,600		93,600	179,400	312,502
1,300,000		110,000		–		4,400		114,400	210,600	312,500
1,400,000		130,000		–		5,200		135,200	241,800	341,666
1,500,000		150,000		–		6,000		156,000	273,000	375,000
1,600,000		180,000		–		7,200		187,200	304,200	375,000
1,700,000		210,000		–		8,400		218,400	335,400	375,000
1,800,000		240,000		–		9,600		249,600	366,600	375,000
1,900,000		270,000		–		10,800		280,800	397,800	375,000
2,000,000		300,000		–		12,000		312,000	429,000	375,000
2,100,000		330,000		–		13,200		343,200	460,200	375,000

 

Conclusion:

1. One needs to calculate the total income tax under the old as well as new regime individually. So long as the benefit of exemptions and deductions is more than the impact of higher tax rate under the old tax regime, it would be advisable not to opt for the new tax regime but continue with the old tax regime. It makes sense to evaluate before taking a final call.

2. Taxpayers with income mentioned in column I above may decide to take the shelter of the old tax regime if the amount of exemption and deduction exceeds the figures mentioned in column VII above.

3. As a general rule, if the amount of deduction and exemption exceeds Rs. 3.75 Lakh for any categories of the taxpayers with income not exceeding Rs. 5 Cr., the old regime may be more beneficial.

4. Above working has been carried out ignoring the benefit of standard deduction to the salaried taxpayers which is available under both the regime. Individual taxpayers with income exceeding Rs. 5 Cr will be benefitted by the reduction in the rate of surcharge and may prefer the new tax regime only.

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Regards,
CA Naresh Jakhotia
Partner – M/s. SSRPN & Co.
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