Factors to help you choose the right Tax Regime

In Budget 2020, government introduced ‘new tax regime’ scheme where taxpayers could pay taxes at a lower rate without availing any exemptions and various deductions that were available to a tax payer.

In Budget 2020, government introduced ‘new tax regime’ scheme where taxpayers could pay taxes at a lower rate without availing any exemptions and various deductions that were available to a tax payer. Thus the idea was to pay tax at a lower rate on the entire taxable income. In 2023, government moved one step further where government further made alterations to the new tax regime scheme, thereby encouraging the taxpayers to opt for it and pay tax at reduced rates without opting for deductions and exemptions. To choose between the tax regimes which save an individual from paying more taxes, there are many factors to be considered. These factors are summarized below:

  1. Tax Exemption Limit: The tax exemption limit under old tax regime is ₹ 2,50,000/- whereas the new tax regime offers tax exemption till ₹ 3,00,000/-
  2. Income Tax Rates: The Income Tax rates for Old and New Tax Regime (with further alterations applicable from 1st April 2023) are as below:
    Income SlabOld Tax RegimeNew Tax Regime (Applicable upto 31st March 2023)New Tax Regime (Applicable from 1st April 2023)
    ₹ 0 to ₹ 2,50,000/-NilNilNil
    ₹ 2,50,001/- to ₹ 3,00,000/-5%5%5%
    ₹ 3,00,001 to ₹ 5,00,000/-5%5%5%
    ₹ 5,00,001 to ₹ 6,00,000/-20%10%5%
    ₹ 6,00,001/- to ₹ 7,50,000/-20%10%10%
    ₹ 7,50,001/- to ₹ 9,00,000/-20%15%10%
    ₹ 9,00,001/- to ₹ 10,00,000/-20%15%15%
    ₹ 10,00,001/- to ₹ 12,00,000/-30%20%15%
    ₹ 12,00,000/- to ₹ 12,50,000/-30%20%20%
    ₹ 12,50,001/- to ₹ 15,00,000/-30%25%20%
    Income > ₹ 15,00,000/-30%30%30%
  3. Surcharge Rates:The rates of surcharge are mostly same in both the tax regimes except for the income above ₹ 5 crore where the rate of surcharge is lower in the new tax regime. The applicable rates of surcharge under old and new tax regime are as follows:
    Income ₹Old Tax RegimeNew Tax Regime
    Upto ₹ 50 lakhNilNil
    ₹ 50 lakh to ₹ 1 crore10%10%
    ₹ 1 crore to ₹ 2 crore15%15%
    ₹ 2 crore to ₹ 5 crore25%25%
    Above ₹ 5 crore37%25%
  4. Tax Rebate:The tax rebate available under old regime is ₹ 5 lakh. However the new regime offers full tax rebate on income upto ₹ 7 lakh. Thus under new tax regime, no tax shall be paid for income upto ₹ 7 lakh.
  5. Deductions and exemptionsThe new tax regime offers lower tax rates provided no deductions and exemptions are claimed by the taxpayer. However, in budget 2023, a deduction of standard deduction and family pension has been made available. The list of deductions under new and old tax regime can be listed as below:
    Deductions / ExemptionsOld Tax RegimeNew Tax Regime
    Upto 31st March 2023From 1st April 2023
    HRA ExemptionAvailableNot AvailableNot Available
    Leave Travel Allowance (LTA)AvailableNot AvailableNot Available
    Food AllowanceAvailableNot AvailableNot Available
    Standard Deduction (Rs 50,000)AvailableNot AvailableAvailable
    Entertainment Allowance and Professional TaxAvailableNot AvailableNot Available
    Perquisites received for official purposesAvailableAvailableAvailable
    Interest on Home Loan u/s 24bAvailableNot AvailableNot Available
    Deduction u/s 80C (EPF, LIC, ELSS, PPF, FD, Children’s tuition fee, Home Loan Principal Repayment, etc)AvailableNot AvailableNot Available
    Employee’s contribution to NPSAvailableNot AvailableNot Available
    Employer’s contribution to NPSAvailableAvailableAvailable
    Medical insurance premium – 80DAvailableNot AvailableNot Available
    Disabled Individual – 80UAvailableNot AvailableNot Available
    Interest on education loan – 80EAvailableNot AvailableNot Available
    Interest on Electric vehicle loan – 80EEBAvailableNot AvailableNot Available
    Donation to Political party/trust – 80GAvailableNot AvailableNot Available
    Bank Interest u/s 80TTA and 80TTBAvailableNot AvailableNot Available
    Other Chapter VI-A deductionsAvailableNot AvailableNot Available
    All contributions to Agni veer Corpus Fund – 80CCHAvailableNot AvailableAvailable
    Deduction on Family Pension IncomeAvailableAvailableAvailable
    Gifts upto Rs 5,000AvailableAvailableAvailable
    Exemption on voluntary retirement & gratuityAvailableAvailableAvailable
    Exemption on Leave encashmentAvailableAvailableAvailable
  6. Tax Calculator: For the ease of taxpayers, the income tax department has provided the tax calculator which will calculate and compare the taxes under old and new tax regime. This tax calculator can be used on below link:


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