Union Budget for 2023 has been presented by the Finance Minister. One major change in this Budget is that the New Tax Regime has been made the default tax regime. This means that if you do not opt for the old tax regime, your tax shall be calculated as per the new tax regime while filing your Income Tax Return. However, taxpayers are looking confused and seeking the answers from Chartered Accountants and other Tax Experts with regard to both the tax regimes. The most common question, which is being asked is-Which Tax Regime Is Better?
Other frequently asked questions in this regard are listed below:
- Which income tax regime is better?
- Which is better old regime or new regime?
- Which tax regime is better for 6 lakhs?
- What are the advantages of new tax regime?
- What is the disadvantage of new tax regime?
In this article, we have considered all the questions often asked by the taxpayers with regard to the Old Tax Regime and New Tax Regime and will explain in detail, which Tax Regime is better for the taxpayers.
Before we proceed further, let us understand some basic things, which have been listed below:
- Rebate under section 87A is available for both old and new regimes upto the income of Rs.5,00,000
- For new regime, rebate under section 87A has been given for income upto Rs.7,00,000
- Standard Deduction is also available to taxpayers under new regime
- Further, tax structure in new regime has also been changed by reducing the number of slabs to five and increasing the tax exemption limit to ₹3 lakh.The new revised tax rates are given below:
– Income slab of ₹3 lakh: No tax levied
– Income of ₹3 lakh to ₹6 lakh: 5% tax rate
– Income of ₹6 lakh to ₹9 lakh: 10% tax rate
– Income of ₹9 lakh to ₹12 lakh: 15% tax rate
– Income of ₹12 lakh to ₹15 lakh: 20% tax rate
– Above ₹15 lakh income: 30%.
Before we compare both the old and new tax regimes, let us understand few things, which are given below:
- If you do not have any tax savings and investments, which qualify for deduction under section 80C and you also do not have any home loan, then New Tax Regime is better option for you without going into any further calculation.
- If you have Investments/Savings which qualify as deduction under section 80C of the Income Tax Act as well as you have taken a housing loan, then the old tax regime will be a much better option for you because you will be allowed a deduction of Rs.1,50,000 under section 80C and will also be eligible to claim the interest on home loan upto Rs.2,00,000 as deduction from the taxable income.
- Let us understand this calculation, with the help of an example. Suppose, Ramesh has annual salary of Rs.7,50,000. His tax shall be calculated in the following manner under the new regime if he has no Savings/Investments for 80C deduction and also do not have any home loan:
Total Salary 7,50,000
Standard Deduction 50,000
Net Taxable Income 7,00,000
Tax Payable 25,000
Tax Rebate U/s 87A 25,000
Net Tax Payable NIL
In the above example, if the salary of Ramesh is Rs.9,00,000, then the tax on his salary shall be calculated in the following manner under old regime assuming that he has Investments/Savings of Rs.1,50,000 which qualify as deduction under section 80C and also have a home loan on which he pays interest of Rs.2,00,000
Annual Salary 900000
Standard Deduction 50000
Net Taxable Income 850000
Deduction u/s 80C 150000
Balance Taxable Salary 700000
Less: Home Loan Interest 200000
Net Taxable Income 500000
Tax Payable 12500
Tax Rebate u/s 87A 12500
Net Tax Payable NIL
From the above example it is clear that Old Tax Regime is much better than the New Tax Regime because under the old tax regime, you not only get the deduction Under 80C and Home Loan Interest, you also get many other deductions like Mediclaim, Interest on Education Loan and Saving Bank Account Interest etc. from you taxable income.
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