Nirmala Sitharaman’s Budget 2023-24 is aimed at making the new tax regime simpler for the middle-income group. For this, the government has revised income tax slabs and extended tax rebates on income up to Rs 7 lakh as against Rs 5 lakh earlier while those with an annual income of up to Rs 3 lakh will not have to pay any tax as against an earlier exemption limit of Rs 2.5 lakh. Also, the new tax regime will become a default one, she said.
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While this does look attractive, will you actually save on tax if you opt for the new tax regime?
For instance, for those who earn Rs 10 lakh per annum, here’s a look at how they will be taxed in the old regime versus the new (concessional) tax regime, which has been revised further for the 2023-2024 fiscal yearl.
In the data below, which Bankbazaar.com has collated for CNBC-TV18.com, it has been assumed that an individual earning Rs 10 lakh annually would be availing of deductions and exemptions of at least Rs 4 lakh. These include deduction against standard deduction, 80C, HRA, home loans, insurance premiums, NPS, 80G, education loans, etc.
As per the old regime (A), if one earns Rs 10 lakh per annum, their taxable income would be Rs 6 lakh after deducting standard deductions and exemptions worth Rs 4 lakh (as assumed). This person would have to pay income tax amounting to Rs 33,800 on choosing the old regime.
In situation (B), where one earns Rs 10 lakh per and chooses the new regime, i.e. the one introduced in 2020 (applicable for the current 2022-2023 fiscal as well), they will not be able to avail of any deductions and exemptions. So, their taxable income remains Rs 10 lakh, meaning the entire income is taxable. They will pay tax amounting to Rs 78,000.
If the person opts for the 2023 revised version of the new tax regime (C), which is applicable from 2023-24 onwards, their taxable income will be Rs 9.5 lakh (Rs 10,00,000-50,000 standard deduction). It must be noted they cannot avail of any other deductions like Rs 4 lakh assumed in the old regime. So, this person will pay income tax amounting to Rs 54,600.
| Income | Old Regime (A) | New Regime (B) | New Regime (C) | Savings | |||||
| Taxableincome* (Rs) | Tax (Rs) | Taxableincome (Rs) | Tax (Rs) | Taxableincome# (Rs) | Tax (Rs) | C over A (Rs) | C over B (Rs) | Is NewRegime2023Better? | |
| 8 lakh | 4 lakh | 7,800 | 8 lakh | 46,800 | 7.5 lakh | 31,200 | -23400 | 15.6 | No |
| 9 lakh | 5 lakh | 13000 | 9 lakh | 62,400 | 8.5 lakh | 41,600 | -28600 | 20800 | No |
| 10 lakh | 6 lakh | 33800 | 10 lakh | 78,000 | 9.5 lakh | 54,600 | -20,800 | 23.4 | No |
| 11 lakh | 7 lakh | 54600 | 11 lakh | 98,800 | 10.5 lakh | 70,200 | -15600 | 28.6 | No |
| 12 lakh | 8 lakh | 75400 | 12 lakh | 1,19,600 | 11.5 lakh | 85,800 | -10400 | 33800 | No |
| Source: BankBazaar.com | |||||||||
| *Deduction against standard deduction, 8OC, HRA, home loans, insurance premium, NPS, 80G, education loan. etc., considered Rs 4 lakh | |||||||||
| # Deduction against the standard deduction | |||||||||
Now comparing the three cases — a person earning Rs 10 lakh would have to pay Rs 33,800 tax in the old regime, Rs 78,000 in the new regime, and Rs 54,600 revised new concessional (2023) regime. Here, it seems fair for the individual to choose the old regime as it taxes them the least.
Reiterating that Bankbazaar.com's tax calculation in the old regime has been made assuming Rs 4 lakh as deductions and exemptions, which could vary for different individuals and hence, the taxable income and tax to be paid can also differ.
Similarly, in the case of those who make anywhere between Rs 8 lakh and Rs 10 lakh, it seems fair to continue paying taxes using the old regime, as per Bankbazaar.com's calculations. However, it can't be denied that the new regime has been made more attractive compared to its previous version by introducing standard deductions and revising tax slabs.
| Income tax slab (Proposed in Budget 2023) | Tax Rate |
| Up to Rs 3 lakh | Nil |
| Rs 3 lakh-Rs 6 lakh | 5% |
| Rs 6 lakh- Rs 9 lakh | 10% |
| Rs 9 lakh- Rs 12 lakh | 15% |
| Rs 12 lakh- Rs 15 lakh | 20% |
| Above Rs 15 lakh | 30% |
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