Explore the comparison between the old and new tax regimes for filing ITR in FY 2023-24. Understand the key changes, deductions, exemptions, and income levels to make an informed decision. Updated on April 20, 2023.
Old vs. New Tax Regime: thumb rule which is better for filing ITR for F.Y. 2023-24 A.Y. 2024-25 by the taxpayers (salaried employees)..….Updated on: Apr 20th, 2023
This is continuation to the write up of detailed analysis of new tax regime, there is a lot of confusion among taxpayers (salaried employees) regarding the choice between the old and new tax regimes after FA 2023 given various incentives to encourage the adoption of the new regime.
Though the new regime is now the default tax regime, the old tax regime will continue to exist. Analysis has been carried out to see which regime to be opt for in the current F.Y. 2023- 24 for payment of taxes/TDS.
Briefly, in the new tax regime, taxpayers (salaried employees) cannot claim several exemptions and deductions, but the following key changes made in FA 2023 in order to encourage taxpayers to adopt the new regime attractive:
> Higher Tax Rebate Limit increased to an income up to ₹7 lakhs;
> Streamlined Tax Slabs: not only tax exemption limit has been increased to ₹3 lakhs but also the new lower tax slabs are given:
0-3 lakh – nil 3-6 lakh – 5% 6-9 lakh- 10%
9-12 lakh – 15% 12-15 lakh – 20% above 15 lakh- 30%
> Standard Deduction and Family Pension Deduction: on Salary income the standard deduction of ₹50,000, has now been extended to the new tax regime as well;
> The above rebate and standard deduction changes makes ₹7.5 lakhs as tax-free income under the new regime, whereas no change for old regime, where it remains at ₹ 5.50 lakh on this account;
> Family pension: Those receiving family pension can claim a deduction of ₹15,000 or 1/3rd of pension, whichever is lower, as allowed under the old regime;
> Reduced Surcharge for High Net worth Individuals: The surcharge rate on income over ₹ 5 crores has been reduced from 37% to 25%, whereas no change for old regime;
> Higher Leave Encashment Exemption: The exemption limit for non-government employees has been raised from ₹3 lakhs to ₹25 lakhs,.
> However, the decision to switch to the new tax regime or remain in the old tax regime or which regime to adopt is dependent on tax savings deductions and exemptions, which taxpayers are eligible for in the old tax regime.
> Basically, the thumb rule is therefore is to consider are total eligible deductions &exemptions and the income level, as could be understood as explained hereunder:
> When total deductions are ₹1.5 lakhs or less: New regime will be beneficial;
> When total deductions are more than ₹3.75 lakhs: Old regime will be beneficial
> When total deductions are between ₹1.5lakhs to ₹3.75 lakhs: will depend on your income level
> The above rule is explained on different on deduction and income levels:
> On income of Rs 7 lakhs, the new tax regime will benefit you.
> On income of Rs 10 lakhs, the old tax regime will benefit if taxpayer has made tax savings investments (deductions other than standard deductions) of over Rs 2,62,500 i.e. If these deductions are less than Rs 2,62,500, then the new regime will be better.
> On Rs.12 Lakhs Salary: the old tax regime is better if invested more than Rs 3,00,000 in tax saving schemes. If spending is less than Rs 3,00,000, then the new regime will be better.
> On Rs.15 Lakhs Salary: old regime: if tax-saving investments > Rs. 3,58,000 New regime: if tax-saving investments < Rs 3,58,000
> On 20 Lakhs Salary: Old regime: if tax-saving investments > Rs. 3,75,000 New regime: if tax-saving investments < Rs 3,75,000
> On 25 Lakhs Salary: Old regime: if tax-saving investments > Rs. 3,75,000 New regime: if tax-saving investments < Rs 3,75,000
> On 30 Lakhs Salary: the new regime will benefit if tax deductions are less than Rs 3,75,000. Else, opt-in for the old tax regime.
> The purpose of giving the above rule is to facilitate in taking a decision as to which option be adopted between New Tax Regime (lower tax rate with no deduction of various allowances and investments etc.) or Old Tax Regime (which allows deductions and allowances) and to pay tax in accordance with such selection for FY 2023-24 AY 2024-25. However, taxpayers have been given further facility to switch between the two tax regimes every financial year, but this facility is not available to taxpayers having business income, wherein the option once chosen will apply to subsequent financial years. Moreover from ‘’Finance Act’’ 2023, the new tax regime shall be the default tax regime and therefore action is to be taken as stated herein:
> Annual Information Statement AIS for Taxpayer now available on mobile from F.Y. 2023-24 onwards to provide easy access and can download this App from Google Play or Apple Store.
> Investments at present have financial benefits of savings for wealth creation with tax benefits giving substantial return as available in the old regime. Now the tax saved on opting new tax regime can at least be invested in small savings schemes, mutual fund schemes etc. along with a portion of the income to build up the corpus for old age i.e. investments should not be stopped even if tax benefit is not available, if opted for new regime
> Own workings: the taxpayers/ salaried employees have to do their own workings that out of all the exemptions that have been removed, how many are applicable for him and how much money can be saved by opting for those. This will help him to decide however, have been given further facility to switch between the two tax regime every financial year at the time of filing ITR.
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