Old vs New Tax Regime – Which is Better in AY 2023-24

Income tax is levied on all individuals, HUFs, partnership firms, LLPs, and corporations as per Income Tax Act. If an individual’s income exceeds the minimum threshold limit, they are subject to a slab system of taxation (i.e. basic exemption limit). Different tax rates are set for different categories of income under a slab system. It indicates that if a taxpayer’s income goes up, so does his or her tax rate. This type of taxation aids the government in establishing progressive and equitable taxes. This article explain about the old vs new tax regime in detail.

New Tax Regime 

Let’s start with the new tax regime. It has six tax slabs, each having a lower rate on income up to Rs. 15 lakhs. Multiple exemptions and deductions are not available due to the varying income slabs and tax rates. There are benefits and drawbacks to the new tax regime.

In two ways, the new tax scheme differs from the previous one:-

1.   The number of tax slabs has expanded under the new system, with reduced rates in the range of Rs. 15 lakh brackets.

2.   In the new regime, all the exemptions and deductions that taxpayers used in the old regime will be unavailable.

Advantages of Opting for the New Tax Regime

 The benefits of the new tax structure are as follows:-

• The present tax regime is still in effect and the taxpayer has the option of choosing between the old and new tax regimes that best fit your needs. The government has not imposed any penalties for failing to convert to the new tax regime.
• The new tax regime allows taxpayers to invest their money without any preconceived limitation. There are no mandatory rules and regulations governing your investment pattern under the new program.
• With numerous tax slabs, you, the taxpayer, will fall into the one that best matches your annual income.

Limitations of Opting for the New Tax Regime

 The disadvantages of the new tax structure are as follows: –

• With no exemptions, your total taxable income will be larger than it was under the previous tax system.

Old Tax Regime

Under the old structure of taxation, the assessee can claim the deduction, exemptions, and allowances with which they can have proper tax planning and save taxes. 

The existing tax structure is convoluted. Despite the high tax rates, there are several strategies to lower your tax obligation. The government has provided Indian taxpayers approximately 70 exemptions and deduction choices through the addition of sections to the Income Tax Act throughout the years, allowing them to reduce their taxable income and hence pay less tax.

Some exemptions are included in your income, such as the House Rent Allowance (HRA) and Leave Travel Allowance (LTA). The deductions allow you to lower your tax obligation by investing, saving, or spending on specific items. Section 80C is the most popular and generous deduction, allowing you to reduce your taxable income by up to Rs.1.5 lakh. Besides that, there are several more exemptions and deductions most widely available for the taxpayers.

Deductions and Exemptions Under Old Tax Regime

Your taxable income might be reduced by lakhs due to a combination of exemptions and deductions. Hence, tax planning is imperative  to maximize your income, savings, and investments each year in order to limit your taxable income to a minimum. There are advantages and disadvantages to the old tax system which are stated below:

Advantages of Opting for the Old Tax Regime

The old income tax regime instilled a savings culture in individuals over time by requiring investments in specific tax-saving instruments. It leads to saving for future events such as marriage, schooling, home purchase, medical, etc.

Limitations of Opting for the Old Tax Regime

In Spite of having many advantages, the old tax structure has its limitations too. The limitations of the old tax regime are as follows:

•  The investment lock-in period hurts liquidity.
•  Current level of consumption owing to committed amount of investments.
•  There are a limited number of tax-saving investments available.
•  Evidence retention of deductions claimed is a hassle.
• Not advantageous for taxpayers with nil or lower transactions eligible for tax deductions

Income Tax Slab Rates for New Vs Old Tax Regime

Old Tax Slabs	Old Income Tax Rates	New Tax Slabs	New Income Tax Rates
Upto Rs 2.5 lakh	NIL	Upto Rs 3 lakh	NIL
Rs 2.5 – Rs 5 lakh	5%	Rs 3 lakh – Rs 6 lakh	5%
Rs 5 – Rs 10 lakh	20%	Rs 6 lakh – Rs 9 lakh	10%
Above Rs 10 lakh	30%	Rs 9 lakh – Rs 12 lakh	15%
		Rs 12 lakh – Rs 15 lakh	20%
		Above Rs 15 lakh	30%

In simple words you can see that the income between Rs. 6 lakh and Rs. 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. Moreover, standard deduction now available under new tax regime as well.

Tax Saving Tips as per Salary

• How to save tax for salary of 7 Lakhs
• How to save tax for salary of 10 Lakhs
• How to save tax for salary of 12 Lakhs
• How to save tax for salary of 15 Lakhs
• How to save tax for salary of 20 Lakhs

Old vs New Tax Regime – When Deductions are less than ₹1,50,000

Gross Total Income	Tax As per Old Regime	New Regime (Pre Budget 2023)	New Regime (Post Budget 2023)	Which is Better?
₹5,00,000	₹0	₹0	₹0	Any
₹6,00,000	₹0	₹22,500	₹0	Old or New Regime (Post Budget 2023)
₹7,00,000	₹0	₹32,500	₹0	Old or New Regime (Post Budget 2023)
₹75,00,000	₹22,500	₹37,500	₹0	New Regime (Post Budget 2023)
₹8,00,000	₹32,500	₹45,000	₹30,000	New Regime (Post Budget 2023)
₹9,00,000	₹52,500	₹60,000	₹40,000	New Regime (Post Budget 2023)
₹10,00,000	₹72,500	₹75,000	₹52,500	New Regime (Post Budget 2023)
₹13,00,000	₹1,42,500	₹1,37,500	₹1,00,000	New Regime (Post Budget 2023)
₹15,00,000	₹2,02,500	₹1,87,500	₹1,40,000	New Regime (Post Budget 2023)
₹15,50,000	₹2,17,500	₹2,02,500	₹1,50,000	New Regime (Post Budget 2023)
₹17,00,000	₹2,62,500	₹2,47,500	₹1,95,000	New Regime (Post Budget 2023)
₹20,00,000	₹3,52,500	₹3,37,500	₹2,85,000	New Regime (Post Budget 2023)
₹30,00,000	₹6,52,500	₹6,37,500	₹5,85,000	New Regime (Post Budget 2023)

NOTE:

Old vs New Tax Regime – When Deductions are more than ₹3,75,000

Gross Total Income	Old Regime	New Regime (Pre Budget 2023)	New Regime (Post Budget 2023)	Which is Better?
₹5,00,000	₹0	₹0	₹0	Any
₹6,00,000	₹0	₹22,500	₹0	Any
₹7,00,000	₹0	₹32,500	₹0	Any
₹75,00,000	₹0	₹37,500	₹0	Any
₹8,00,000	₹0	₹45,000	₹30,000	Old Regime
₹9,00,000	₹0	₹60,000	₹40,000	Old Regime
₹10,00,000	₹26,500	₹75,000	₹52,500	Old Regime
₹13,00,000	₹86,500	₹1,37,500	₹1,00,000	Old Regime
₹15,00,000	₹1,33,500	₹1,87,500	₹1,40,000	Old Regime
₹15,50,000	₹1,48,500	₹2,02,500	₹1,50,000	Old Regime
₹17,00,000	₹1,93,500	₹2,47,500	₹1,95,000	Old Regime
₹20,00,000	₹2,83,500	₹3,37,500	₹2,85,000	Old Regime
₹30,00,000	₹5,83,500	₹6,37,500	₹5,85,000	Old Regime

NOTE:

Old vs New Tax Regime – When Deductions are in between ₹ 1,50,000 and ₹ 3,75,000

Gross Total Income	Old Regime	New Regime (Pre Budget 2023)	New Regime (Post Budget 2023)	Which is Better?
₹5,00,000	₹0	₹0	₹0	Any
₹6,00,000	₹0	₹22,500	₹0	Any
₹7,00,000	₹0	₹32,500	₹0	Any
₹75,00,000	₹0	₹37,500	₹0	Any
₹8,00,000	₹12,500	₹45,000	₹30,000	Old Regime
₹9,00,000	₹32,500	₹60,000	₹40,000	Old Regime
₹10,00,000	₹52,500	₹75,000	₹52,500	Old or New Regime (Post Budget 2023)
₹13,00,000	₹1,12,500	₹1,37,500	₹1,00,000	New Regime (Post Budget 2023)
₹15,00,000	₹1,72,500	₹1,87,500	₹1,40,000	New Regime (Post Budget 2023)
₹15,50,000	₹1,87,500	₹2,02,500	₹1,50,000	New Regime (Post Budget 2023)
₹17,00,000	₹2,32,500	₹2,47,500	₹1,95,000	New Regime (Post Budget 2023)
₹20,00,000	₹3,22,500	₹3,37,500	₹2,85,000	New Regime (Post Budget 2023)
₹30,00,000	₹6,22,500	₹6,37,500	₹5,85,000	New Regime (Post Budget 2023)

NOTE:

Old vs New Tax Regime – Which is Better?

Both the new and old income tax slabs slabs have their benefits and drawbacks. It all depends on whether you want to claim deductions and exemptions under the new tax slab, which includes a variety of income levels and rates. Deductions and exemptions are available under the old tax slab. Before you submit your taxes, you should do a comparative evaluation and assessment under both tax systems. You can use Scripbox’s Income Tax calculator and know the net tax payable under each of the regimes. This way you can plan your taxes ahead and invest accordingly. The calculator also suggests which regime is suitable for you.

Let’s use the example of Mr. Vipul, who earns a salary of Rs 40 lakh each year. The HRA deduction is Rs 50,000. He uses a combination of EPF and ELSS mutual funds to utilize Section 80C limit of Rs. 1.5 lakh. He also purchased health insurance for which he paid a Rs 25,000 premium (self and spouse) and Rs. 50,000 (senior citizen – parents), which he claims as a tax deductible under Section 80D. He also invested an extra Rs 30,000 in NPS to save even more taxes from his income. Vipul also claimed a tax-free Leave Travel Allowance sum of Rs 25,000.

Let’s see if the old vs new tax regime- which will put more money in his pocket.

Illustration on Income Tax Calculation (Old vs New Tax Regime)

Particulars	Old Tax Regime (Rs.)	New Tax Regime (Rs.)
Annual Income	40,00,000	40,00,000
Less: Standard Deduction	50,000	50,000
Less: Section 80C (EPF +LIC+ Tuition Fees, etc)	150,000	Nil
Less: House Rent Allowance	50,000	Nil
Less: Health Insurance- self and spouse- parents (if senior citizen)	25,000+50,000	Nil
Less: Leave Travel Allowance	25,000	Nil
Less: New Pension Scheme 80CCD (1B)	30,000	Nil
Total (Deduction & Exemption)	3,80,000	Nil
Net Taxable Income (Annual Income – Total deductions & exemptions)	36,20,000	39,50,000

Total Tax Payable as per Old Regime

Income Tax Slabs (Rs.)	Old Tax Rates	Tax(Old) (Rs.)
0 – 2,50,000	0%	₹0
2,50,000 – 5,00,000	5%	₹12,500
5,00,000 – 7,50,000	20%	₹50,000
7,50,000 – 10,00,000	20%	₹50,000
10,00,000 – 12,50,000	30%	₹75,000
12,50,000 – 15,00,000	30%	₹75,000
15,00,000 & above	30%	₹636,000
Total taxes		₹898,500
Add: Higher Education Cess @4%		₹35,940
Total tax payable		₹934,440

Total Tax Payable as per New Regime (FY 23-24 & AY 24-25)

Income Tax Slabs (Rs.)	New Tax Rates	Tax(New)(Rs.)
0 – 3,00,000	0%	₹0
3,00,000 – 6,00,000	5%	₹15,000
6,00,000 – 9,00,000	10%	₹30,000
9,00,000 – 12,00,000	15%	₹45,000
12,00,000 – 15,00,000	20%	₹60,000
Above 15,00,000	30%	₹735,000
Total taxes		₹885,000
Add: Higher Education Cess @4%		₹35,400
Total tax payable		₹920,400

So, you can see here the new tax regime turns out to be better. Opting for the new tax regime instead of the old regime will result in lower taxes by Rs 14,040.

Deductions and Exemptions Allowed Under the Old and New Tax Regime

Particulars	Old Tax Regime	New tax Regime (until 31st March 2023)	New Tax Regime (from 1st April 2023)
Income level for rebate eligibility	₹5,00,000	₹5,00,000	₹7,00,000
Standard Deduction	₹50,000	–	₹50,000
Effective Tax-Free Salary income	₹5,50,000	₹5,00,000	₹7,50,000
Rebate u/s 87A	₹12,500	₹12,500	₹25,000
HRA Exemption	Yes	No	No
Leave Travel Allowance (LTA)	Yes	No	No
Other allowances including food allowance of Rs 50/meal subject to 2 meals a day	Yes	No	No
Standard Deduction (Rs 50,000)	Yes	No	Yes
Entertainment Allowance and Professional Tax	Yes	No	No
Perquisites for official purposes	Yes	Yes	Yes
Interest on Home Loan u/s 24b on: Self-occupied or vacant property	Yes	No	No
Interest on Home Loan u/s 24b on: Let-out property	Yes	Yes	Yes
Deduction u/s 80C (EPF | LIC | ELSS | PPF | FD | Children’s tuition fee etc)	Yes	No	No
Employee’s (own) contribution to NPS	Yes	No	No
Employer’s contribution to NPS	Yes	Yes	Yes
Medical insurance premium – 80D	Yes	No	No
Disabled Individual – 80U	Yes	No	No
Interest on education loan – 80E	Yes	No	No
Interest on Electric vehicle loan – 80EEB	Yes	No	No
Donation to Political party/trust etc – 80G	Yes	No	No
Savings Bank Interest u/s 80TTA and 80TTB	Yes	No	No
Other Chapter VI-A deductions	Yes	No	No
All contributions to Agniveer Corpus Fund – 80CCH	Yes	Did not exist	Yes
Deduction on Family Pension Income	Yes	Yes	Yes
Gifts upto Rs 5,000	Yes	Yes	Yes
Exemption on voluntary retirement 10(10C)	Yes	Yes	Yes
Exemption on gratuity u/s 10(10)	Yes	Yes	Yes
Exemption on Leave encashment u/s 10(10AA)	Yes	Yes	Yes
Daily Allowance	Yes	Yes	Yes
Conveyance Allowance	Yes	Yes	Yes
Transport Allowance for a specially-abled person	Yes	Yes	Yes

Conclusion

Both the new and old income tax slabs have advantages and disadvantages. Due to the variety of deductions and exemptions available under the former tax regime, such as PPF, ELSS, and Mediclaim, the taxpayer had a lot of investment choices. The new tax regime is tailored to new investors and individuals who have only recently begun their careers, as their income has only recently begun.

As a result, the only way to determine old vs new tax regime- which is better for you is to enter your income into both regimes to determine the actual tax payable.

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