To learn more about tax payable, you can use the various old tax regime calculators available online.

How to Opt for the Old Tax Regime In 2023?

Taxpayers with business or professional income are required to use Form 10IE to opt for the new tax regime, with this form becoming available in October 2020.

However, with the changes outlined in the Union Budget 2023, starting from FY 2023-24, taxpayers will be automatically placed in the new tax regime as the default option. Instructions on how to switch to the old tax regime will be provided by the tax department at a later date.

What is the New Tax Regime?

Budget 2020 introduced a new tax regime in which tax slabs were changed, and taxpayers were offered lower tax rates. However, those who choose the new regime will be unable to claim several exemptions and deductions, including HRA, LTA, 80C, 80D, and others.

Also, the basic exemption limit in the new regime is ₹3 lakh, with a standard deduction of ₹50,000 for salaried taxpayers. There's also a rebate for income up to ₹7 lakh.

Here are some key highlights of the new tax regime:

Increased Tax Rebate Limit: A full tax rebate of up to ₹7 lakhs has been introduced. Under the old tax regime, this threshold was set at ₹5 lakhs. This means that people earning up to ₹7 lakh will not have to pay any tax under the new regime.

Salary income: The ₹50,000 standard deduction, which was previously only offered under the old regime, has now been included in the new tax regime as well. Together with the rebate, this amounts to ₹7.5 lakhs in tax-free income under the new regime.

Family pensioners: They can claim a reduction of ₹15,000 or one-third of their pension, whichever is less.

Surcharge for High-Net-Worth Individuals cut: The surcharge rate for income over ₹5 crores has been cut from 37% to 25%. This change reduces their effective tax rate from 42.74% to 39%.

Higher Leave Encashment Exemption: The deduction limit for non-government personnel has been increased eightfold, from ₹3 lakhs to ₹25 lakhs.

Default Regime: Beginning in fiscal year 2023-24, the new income tax regime will be the default option. If you want to keep using the old regime, you must file a form with your return. You will be able to move between the two regimes yearly.

Moreover, the tax exemption ceiling has been raised to ₹3 lakhs, and the new tax slabs are as follows:

Difference Between Old and New Tax Regime: Tax Rate

Here is a detailed breakdown of the tax rate difference between the old and new tax regimes:

Difference Between Old and New Tax Regime: Deductions

Here is a detailed breakdown of the deductions difference between the old and new tax regimes:

Difference Between Old and New Tax Regime: Breakeven Threshold

Budget 2023 proposes an increase in the Section 87A refund for taxpayers opting for a new tax system, under which taxpayers who previously had to pay zero income tax on income up to ₹5 lakh will now pay zero tax on income up to ₹7 lakh

In addition, under the new tax structure, it has extended a standard deduction of Rs. 50,000 to salaried individuals.

Salaried individuals will have to pay zero tax burden up to ₹7.5 lakh in annual income due to deductions and rebates, as well as changes to the income tax bracket. Thus, the path to a new tax regime is extremely clear here.

We estimated a breakeven point for various income levels for earnings exceeding ₹7.5 lakh. The breakeven point is the level at which no difference in tax liability exists between the two regimes.

Stick with the old system if your total allowable deductions and exemptions in the old regime are greater than the breakeven threshold for your income level. If your total qualifying deductions and exemptions are above the breakeven threshold, the new regime may be more beneficial to you.

Difference Between Old and New Tax Regime: Which One to Choose?

Here are some differences between the old and new tax regimes to help select between old and new tax regimes:

• If you don't have any deductions to claim, consider the new tax regime because it offers lower tax rates and no deductions on investments.

• When total deductions are less than ₹1.5 lakhs, the new regime will be advantageous.

• When total deductions are more than ₹3.75 lakhs, the old regime will be advantageous.

• When total deductions range from ₹1.5 lakhs to ₹3.75 lakhs, the benefit will be determined by your income level.

Wrapping Up

Both the old and new tax regimes have their pros and cons. The old tax structure encourages savings, while the new one benefits employees with lower earnings and fewer investments, resulting in fewer deductions and exemptions. Also, the new system is considered safer and simpler, with reduced paperwork and a lower risk of tax evasion.

However, because deductions and exemptions vary, it's essential to compare the two regimes to determine the best option for each individual.

Frequently Asked Questions

Can we switch between the old and new tax regimes?

Yes! According to Budget 2023, individuals are permitted to switch between the existing and new regimes. The number of times an individual can move between the two, however, is determined by the type of income. A salaried individual, for example, can choose between the new and old tax regimes in each fiscal year.

Is the new tax regime better than the old tax regime?

Your overall income determines the benefits; the new regime is helpful when total deductions are less than ₹1.5 lakhs. Whereas, when total deductions surpass ₹3.75 lakhs, the old regime will be advantageous.

What are the benefits of the new tax regime?

The new regime reduces tax rates and compliance requirements. Furthermore, because most exemptions and deductions are unavailable, tax filing becomes simpler since less documentation is required.

What are the disadvantages of the new tax regime?

One significant disadvantage of the new tax structure is that it does not allow for exemptions. This will increase taxpayers' overall taxed amount. Also, while the new tax regime provides lower income taxes for taxpayers with income up to ₹15 lakhs, it comes at the expense of exemptions available under the old tax regime.