Old vs new tax regime: Know what's better for salaried employees

Old vs New Tax Regime: Are you scratching your he, confused between choice of sticking with tried-and-tested old tax regime or succumbing to enticing allure of new regime? Here's a quick comparison of both tax regimes to help you make an informed decision.

Budget 2023 introduced key changes to incentivise option of new regime. Notably, higher tax rebate limit, now applicable for incomes up to Rs 7 lakh compared to Rs 5 lakh under old regime, provides relief for taxpayers. Moreover, revised tax slabs and extended deductions, including standard deduction for salary income, contribute to making new regime more appealing.

Conversely, old tax regime retains its allure with over 70 exemptions and deductions, including popular Section 80C, allowing for substantial reductions in taxable income. This familiarity and potential for significant tax savings make old regime a compelling choice for many taxpayers.

Old vs New: What are tax rates across income brackets?

tax rates under three different regimes, namely old tax regime, new tax regime until March 31, 2023, and new tax regime from April 1, 2023, are compared across various income slabs. Under old tax regime, re are no tax implications for income up to Rs 2,50,000. However, in new tax regime until March 31, 2023, and one from April 1, 2023, tax rate remains at 5 per cent for income slab of Rs 2,50,000 to Rs 3,00,000.

For incomes between Rs 3,00,000 and Rs 5,00,000, tax rate is 5 per cent under all three regimes. Notably, new tax regime from April 1, 2023, introduces changes in tax rates for higher income slabs. For instance, under old tax regime, tax rate for incomes between Rs 5,00,000 and Rs 6,00,000 is 20 per cent, which reduces to 10 per cent in new regime until March 31, 2023, and furr decreases to 5 per cent under new regime from April 1, 2023. Similarly, tax rates for or income slabs also vary across three regimes, reflecting justments aimed at altering tax burden for different income groups.

Under new tax regime, standard deduction of Rs 50,000, previously exclusive to old regime, has been extended, making Rs 7.5 lakh tax-free income threshold. ditionally, individuals receiving family pensions can claim a deduction of eir Rs 15,000 or 1/3rd of pension, whichever is lower.

Notably, high net worth individuals benefit from a reduced surcharge rate on income exceeding Rs 5 crore, dropping from 37 per cent to 25 per cent. This reduction results in a decrease in effective tax rate from 42.74 per cent to 39 per cent. Furrmore, non-government employees can now enjoy a higher leave encashment exemption, soaring from Rs 3 lakh to Rs 25 lakh, marking an eight-fold increase.

Fiscal default switch

Effective from fiscal year 2023-24, new income tax regime is set as default option, requiring individuals who opt for old regime to submit ir income tax returns alongside Form 10IEA before due date. However, taxpayers retain flexibility to switch between two regimes annually to assess potential tax benefits.

Tritional tax perks

old tax regime, characterised by over 70 exemptions and deductions including HRA and LTA, offers avenues for reducing taxable income and lowering tax liabilities. Notably, Section 80C remains a prominent deduction, allowing for a maximum reduction of taxable income by Rs 1.5 lakh.

Individuals are presented with a choice between old and new tax regimes, with decision hinging on tax-saving deductions and exemptions available under each.