India’s New Income Tax Regime Compared With The Old Tax Regime

Introduction

On February 1, 2023, India’s Finance Minister, Nirmala Sitharaman, presented the latest Union Budget. Considered a populist budget amid the economic slowdown the country is facing, many announcements in it bode well for our citizens. Among them were the changes announced under the new Income Tax Regime. 

In this article, we will discuss the aspects introduced under the new Income Tax Regime and make a comparison between the new and old tax regimes. 

Highlights of the New Income Tax Regime 

The new Income Tax Regime was first implemented in the Financial Year 2020-21. It had marked differences from the Old Income Tax Regime. In the latest Union Budget, the Finance Minister has further tweaked the New Income Tax Regime to make it more attractive. Here are the top highlights: 

1. The New Income Tax Regime has been announced as the default tax regime. However, taxpayers will still have the option to choose the Old Income Tax Regime. 
2. Standard deduction of Rs. 50,000 has been introduced under the New Income Tax Regime. Previously, only those opting for the Old Income Tax Regime were allowed this deduction. 
3. Similarly, a family pension deduction of Rs. 15,000 has also been introduced under the new regime. 
4. Under the new regime, the rebate limit for income tax has been bumped up from Rs. 5,00,000 to Rs. 7,00,000. This means that individuals drawing an annual salary of up to Rs. 7,00,000 will have no tax liability. 
5. New income tax slabs have also been introduced. 

Comparison Between the New and Old Tax Regimes 

The tax slabs and deductions that can be claimed are the significant differences between the new and old income tax regimes. The old income tax regime has three tax slabs, while the new income tax regime’s tax slabs have been reduced from seven to six. You cannot claim most deductions under the New Income Tax Regime. Under the Old Income Tax Regime, you can claim up to Rs. 1,50,000 as deductions under Section 80C of the Income Tax Act, contributions to NPS, loans, etc. 

Below, we have detailed the income slab comparison between the new and old tax regimes for taxpayers below the age of 60: 

As you can see, under the new Union Budget, the New Income Tax Regime slabs have been revised to reduce the tax burden of individuals. 

Which Tax Regime Should You Choose? 

Below, we have analysed the tax outgo under different income brackets as per the old tax regime and the new tax regime, assuming a total deduction claimed of Rs. 2,00,000 under the old tax regime: 

Given the introduction of the standard deduction and the increased rebate for individuals making up to Rs. 7,50,000 p.a., the New Income Tax Regime will be a better choice because it reduces the tax burden. 

However, for individuals who are drawing annual salaries of more than Rs. 9,00,000 p.a. and have sufficient deductions to claim, over and above the standard deduction and Section 80C deductions, the old tax regime may still prove to be more beneficial. However, if you do not want to lock up your investments in tax-saving instruments, you could opt for the New Income Tax Regime. 

Final Word 

The New Income Tax Regime has been tweaked considerably to fit the needs of Indian taxpayers. Choosing between the new and old tax regimes should be done with care. Salaried individuals can choose between the old and new tax regimes every year. However, for those with income under the head “Business and Profession”, the choice to shift from the new regime to the old regime is limited. They can shift only once to the old regime, after which they will continue to be taxed under the New Income Tax Regime.