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As discussed before, when it comes to calculating your tax liability, you have two options to choose from - the Old Tax Regime and the New Tax Regime. In this article, we will explore how tax liability differs under these two regimes.
Let's take a closer look at the tax rates under both regimes.
OLD TAX REGIME
| INCOME SLAB | INCOME TAX RATE |
|---|---|
| up to ₹250,000 | Nil |
| ₹250,001 to ₹5,00,000 | 5% |
| ₹5,00,001 to ₹10,00,000 | 20% |
| More than ₹10,00,000 | 30% |
NEW TAX REGIME
| INCOME SLAB | INCOME TAX RATE |
|---|---|
| Up to ₹ 3,00,000 | Nil |
| ₹3,00,001 to ₹6,00,000 | 5% |
| ₹6,00,001 to ₹9,00,000 | 10% |
| ₹9,00,001 to ₹12,00,000 | 15% |
| ₹12,00,001 to ₹15,00,000 | 20% |
| More than ₹15,00,000 | 30% |
Annual Income up to INR 7.5 Lakhs
For those with an annual income up to INR 7.5 lakhs, the New Regime is the clear choice as it is tax-free. After the Budget 2023, income up to INR 7 lakhs is tax-free under the New Regime. Moreover, a standard deduction of INR 50,000 is now allowed under this regime as well.
Annual Income More than INR 7.5 Lakhs
If your income is more than INR 7.5 Lakhs, the decision of which regime to opt for depends on your financial situation and the amount of deduction you can claim. To make an informed decision, you need to calculate your tax liability. However, we can provide some guidance to help you make your decision.
As discussed, after Budget 2023, New Regime has become more beneficial. However, the Old Regime can still be advantageous for you if your deductions are more than the amount mentioned below:
| GROSS TAXABLE INCOME | OLD REGIME IF DEDUCTION IS MORE THAN |
|---|---|
| Up to INR 750000 | NEW REGIME |
| INR 8,00,000 | INR 2,12,500 |
| INR 8,50,000 | INR 2,40,000 |
| INR 9,00,000 | INR 2,62,500 |
| INR 10,00,000 | INR 3,00,000 |
| INR 11,00,000 | INR 3,25,000 |
| INR 12,25,000 | INR 3,56,000 |
| INR 13,50,000 | INR 2,62,000 |
| INR 14,25,000 | INR 3,83,000 |
| INR 15,00,000 | INR 4,08,300 |
| INR 20,00,000 | INR 4,25,000 |
For example, if your income is INR 10 lakhs, your annual tax liability under the New Regime would be INR 54,600, whereas under the Old Regime without any exemptions, it would be INR 106,600. This is a significant difference. However, if you have deductions exceeding INR 3,00,000, you can benefit from the Old Regime.
COMPARISON
| New Regime | Old Regime (No Exemption) | Old Regime(With Exemption) | |
|---|---|---|---|
| Taxable Income | NR 10,00,000 - 50,000 = INR 9,50,000 | NR 10,00,000 - 50,000= INR 9,50,000 | NR 10,00,000 - 3,10,000 = INR 6,90,000 |
| Total Tax (Annual) | INR 1,06,600 | INR 54,600 | INR 52,520 |
Wealth Cafe Advice :
It’s time for you to leave your attachment for Old Regime aside. Calculate your tax liability under both regimes. If New Tax Regime is beneficial to you, opt for it - it is hassle-free and helps save more taxes.
But if you have deductions and allowances that you can claim over and above mentioned in the table - opt for the old regime.
Make sure to mention your Tax Regime to your employer correctly at the time of tax declaration in the start of the financial year, because just in case if you wish to change your regime, your employer won’t be able to help you with the same. After Budget 2023, you can do it only once in a financial year and directly while filing your ITR.
If you have any queries, you can email us at iplan@wealthcafe.in - we will help you with your decision for free.