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The Union budget 2023 presented in the Parliament today on 1st February 2023, the Finance Minister proposed five major announcements for tax payers:

1. Nil tax, upto income Rs. 7 Lakhs (After Rebate U/S 87A)

2. Six Income slabs and new tax rates

3. Standard Deduction Rs. 52,500/- for salaried person with an income of Rs. 15.5 Lakhs or above.

4. Surcharge on Income above 2 Cr 25% instead of 37%

5. Encashment of earned leave upto 10 months of average salary, at the time of retirement in case of an employee (other than an employee of the Central Government or State Government), is exempt under sub-clause (ii) of clause (10AA) of section 10 of the Income-tax Act to the extent notified. The maximum amount which can be exempted is Rs. 3 Lakhs at present. It is proposed to issue notification to extend this limit to Rs. 25 Lakhs

Note: ALL THE ABOVE CHANGES (Sr. 1 TO Sr.4 )IS APPLICABLE ONLY IN NEW INCOME TAX REGIME, NO CHANGES IN OLD INCOME TAX REGIME. It means you can get benefit of above changes if you select new tax regime. Nil tax in old tax regime, Upto income Rs. 5 Lakhs (After Rebate U/S 87A). No change in Income tax slab and rate in old tax regime. No changes in Standard Deduction for salaried person with an income of Rs. 15.5 lakhs of above if you selecting old tax regime. No change in surcharge is proposed for those who opt to be under the old regime.

 Some more important changes:

Standard deduction of Rs.50,000/- to salaried individual, and deduction from family pension up to Rs.15,000/- is currently allowed only under the old regime. It is proposed to allow these two deductions under the new regime also.

Tax on capital gains can be avoided by investing proceeds of such gains in residential property. This is proposed to be capped at Rs.10 Cr.

The income from market linked debentures is proposed to be taxed as short-term capital gains at the applicable rates.

New income tax regime as the default tax regime. However, citizens will continue to have the option to avail the benefit of the old tax regime.

Budget 2023 Key Points For Taxpayers and Which Income Tax Regime is better

New Tax Regime as an alternative to the existing Old Tax Regime for Individual and HUFs. Since the Old Tax Regime is optional by all means, a taxpayer now has a choice to make between the New and Old Tax Regime after a careful comparison supported by facts and figures.

Income Tax rates under the new tax regime and the old tax regime:

Annual Income New Tax Regime Old Tax Regime
Up to 2.5 Lakhs NIL NIL
2.5 Lakhs to 3 Lakhs NIL 5%
3 Lakhs to 5 Lakhs 5% 5%
5 Lakhs to 6 Lakhs 5% 20%
6 Lakhs to 9 Lakhs 10% 20%
9 Lakhs to 10 Lakhs 15% 20%
10 Lakhs to12 Lakhs 15% 30%
12 Lakhs to 15 Lakhs 20% 30%
Above 15 Lakh 30% 30%

In above table it is clearly showing that the new tax regime has proposed lower income-tax rates, for income segments up to Rs 15 lakh, but you need to remember that the proposed lower tax rates will be applicable only if you are willing to give up exemptions and deductions available under various provisions of the Income-tax Act, 1961. This means that when you choose the New Tax Regime, you will have to forgo some exemptions and deductions available under chapter VI A of the Act that grant deductions under Section 80. Even the deduction on home loan interest, under Section 24(b) will be disallowed. Around 70 exemptions and deductions have been removed in the New Tax Regime.

Some of the 70 exemptions and deductions you won’t get in new regime:

  • Leave travel allowance Section 10(5)
  • House rent allowance Section 10(13A)
  • Children Education Allowance
  • Housing loan interest
  • Section 80C investments
  • Medical insurance premium U/S 80D
  • Expenses actually paid for medical treatment of specified diseases and ailments U/S 80DDB
  • Education loan interest U/S 80E
  • Rent paid for furnished/unfurnished residential accommodation U/S 80GG
  • Deduction in respect of donations to certain funds, charitable institutions U/S 80G
  • Interest on deposits in saving account U/S 80TTA
  • Interest on deposits U/S 80TTB for senior citizens
  • Deduction for a certified person with a disability by the medical authority U/S 80U

Will taxpayer gain by switching to new regime?

The Ministry of Finance expects four out of five Income taxpayers to move to the new tax regime. It has analyzed the income and investment data of 57.8 million taxpayers and found that 69% would prefer to save on tax under the new system. Another 20% might want to switch to avoid the hassles and paperwork involved in tax planning. Taxpayer who avail several exemptions and deductions such as house rent allowance and Section 80C deductions may not benefit from switching to the new system. Taxpayer will be able to make the choice depending on their financial situation and depending on what is best suitable from a tax planning point of view. The budget has tried to put more money in the hands of taxpayers by curtailing the incentives to save. Section 80C forces individuals to save, and they will be weaned off savings if there is no tax incentive. The impetus seems to be towards spending, rather than focusing on longer term financial security for taxpayer. Taxpayer who opt for the new tax regime and forgo tax exemptions may end up spending money rather than use it towards their financial safety and security. You don’t really need to do an elaborate calculation to know that which regime to choose. The answer is actually quite simple. Anyone claiming tax exemptions and deductions more than given in below chart can choose old regime, If your total exemption and deduction is less than amount given in below chart select New Tax Regime which will proposed as the default tax regime.

Annual Income After Deducting Standard Deduction

(Rs.50,000/- /Rs.52,500/-)

As applicable to salaried persons

Income Tax
As per Old Income Tax Regime
(Without claiming Exemption and Deduction)
Income Tax

As per New Income Tax Regime

Exemption and Deduction Required in Old Regime to equalized the Tax
Rs.7,00,000/- Rs.52,500/- NIL Rs.2,00,000/-
Rs.7,01,000/- Rs.52,700/- Rs.25,100/-  Rs. 1,38,000/-
Rs.7,10,000/- Rs.54,500/- Rs.26,000/-  Rs. 1,42,500/-
Rs.7,50,000/- Rs.62,500/- Rs.30,000/-  Rs. 1,62,500/-
Rs.8,00,000/- Rs.72,500/- Rs.35,000/-  Rs. 1,87,500/-
Rs.8,50,000/- Rs.82,500/- Rs.40,000/-  Rs. 2,12,500/-
Rs.9,00,000/- Rs.92,500/- Rs.45,000/-  Rs. 2,37,500/-
Rs.9,50,000/- Rs.1,02,500/- Rs.52,500/-  Rs. 2,50,000/-
Rs.10,00,000/- Rs.1,12,500/- Rs.60,000/-  Rs. 2,62,500/-
Rs.10,50,000/- Rs.1,27,500/- Rs.67,500/-  Rs. 2,75,000/-
Rs.11,00,000/- Rs.1,42,500/- Rs.75,000/-  Rs. 2,87,500/-
Rs.11,50,000/- Rs.1,57,500/- Rs.82,500/-  Rs. 3,00,000/-
Rs.12,00,000/- Rs.1,72,500/- Rs.90,000/-  Rs. 3,12,500/-
Rs.12,50,000/- Rs.1,87,500/- Rs.1,00,000/-  Rs. 3,12,500/-
Rs.13,00,000/- Rs.2,02,500/- Rs.1,10,000/-  Rs. 3,12,500/-
Rs.13,50,000/- Rs.2,17,500/- Rs.1,20,000/-  Rs. 3,25,000/-
Rs.14,00,000/- Rs.2,32,500/- Rs.1,30,000/-  Rs. 3,41,667/-
Rs.15,00,000/- Rs.2,62,500/- Rs.1,50,000/-  Rs. 3,75,000/-
Rs.15,50,000/- Rs.2,77,500/- Rs.1,65,000/-  Rs. 3,77,500/-

As per above chart it is clear that Tax is less in New Income Tax Regime, but if your total deduction and exemption is more than amount given in chart you should select Old Income Tax Regime otherwise New Income Tax Regime is beneficial. For Annual income above Rs.15,50,000/- if total deduction and exemption is more than Rs.3,77,500/- than Old Income Tax Regime is beneficial.

Any individual, HUF, AOP (other than co-operative), BOI or AJP not willing to be taxed under this new regime can opt to be taxed under the old regime. For those people having income under the head “profit and gains of business or profession” and having opted for old regime can revoke that option only once and after that they will continue to be taxed under the new regime. For those not having income under the head “profit and gains of business or profession”, option for old regime may be exercised in each year.

*****

We would be glad to know your doubts or queries or clarification or suggestion. Please feel free to contact us at: abhishek@arssolutions.co.in +919022838615.

The Author is a Certified and authorized Tax Return Preparer of Income Tax Department of India; currently he is Managing Director and Founder of ARS Solutions.

Disclaimer – Before making any decisions do consult the experts. Author does not take any responsibility for misrepresentation or interpretation of act or rules. Neither the author nor the firm accepts any liability for the loss or damage of any kind arising out of information in this document or for any action taken in reliance there on.

Author Bio

Managing Director and Founder of ARS Solutions. Certified and Authorized Tax Return Preparer of Income Tax Department, India. Registered GST Practitioner of Goods and Service Tax, India. ECRP, Election Commission of India. Mutual Fund Advisor of Association of Mutual Funds in India ECRP of Elec View Full Profile

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22 Comments

  1. D V G A Somayajulu says:

    Sir, Is standard deduction rupees 50000/- is applicable to every tax payer irrespective of their in come? i.e.from 7 lakhs to 15 lakhs on the new regime.

  2. boma says:

    Tax results very clearly presented in the article. But I am not clear on tax calculations for family pensioners. Could this be explained with an example such as, Say family pension 285000, Interest income 100000. What would be income tax per new regime for AY 24-25.

    1. ARSTG says:

      Family Pension Rs.285000/-
      Less : Deduction u/s 57(iia) Rs.15000/-
      (1/3rd of Family pension or Rs. 15,000 whichever is lower)
      Add: Interest Income Rs.100000/-
      Gross Income Rs.370000/-
      Income tax (As per New Regime) Rs.3500/-
      Less : Rebate U/S 87 A Rs.3500/-
      Income Tax After Rebate NIL

  3. Dinesh Pandey says:

    The charts published in this article are very useful for a common Tax payer in deciding whether to adopt new tax regime or old tax regime. At a glance, one can easily understand all the changes done in new tax regime. Thanks to the author of the article.

  4. Godandpani N says:

    can we switch to any regime yearly according to our calculations if yes how many times or there is any limit
    pls guide on this…

    Thanks

    1. ARSTG says:

      Any individual, HUF, AOP (other than co-operative), BOI or AJP not willing to be taxed under this new regime can opt to be taxed under the old regime. For those person having income under the head “profit and gains of business or profession” and having opted for old regime can revoke that option only once and after that they will continue to be taxed under the new regime. For those not having income under the head “profit and gains of business or profession”, option for old regime may be exercised in each year.

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