The introduction of the recent budget of 2023 has left the taxpayers in a lot of confusion regarding whether to choose the old tax regime or opt for the new tax regime. Various incentives have been introduced in the new tax regime by the government so that more and more taxpayers opt for it. These changes are aimed at transitioning the taxpayers from the old tax regime to the new tax regime and eventually phasing out the old one. Now, the new tax regime has been set as default but the old tax regime will also continue to exist. In this blog, we will look at both the regimes and decide which one is better.
The government introduced the new tax regime in the budget of 2020. In this, the tax slabs were changed and the taxpayers were given concessional tax rates. However, the taxpayers were denied several exemptions and deductions like the HRA, LTA, 80C and 80D and many more. Due to this, not many people opted for the new tax regime and the government had to make changes in it and re-introduce it in the budget of 2023. These are listed below:
Full tax exemption on income of up to 7 lakhs has been given under the new tax regime whereas in the old tax regime, this limit was up to an income of Rs 5 lakhs.
The tax exemption limit was increased to rs 3 lakhs in the new tax regime. The tax slabs of the new tax regime are listed below:
The limit of exemption for non Government employees has been changed to 25 lakhs from 3 lakhs.
From financial year 2023-24 onward, the new tax regime will be set as the default tax regime. In order to continue using the old tax regime, the applicant will first have to submit a form at the time of filing the return.
The old tax regime is the taxing system which was used before the new tax regime was introduced. In this regime, around 70 exemptions and reductions are available along with HRA and LTA, which help in reducing the taxable income and lower the amount of tax to be paid. The most generous reduction in the old tax regime was under section 80c, which allowed a reduction of taxable income up to Rs 1.5 lakhs. Now, the taxpayers get a choice between the old and the new tax regime.
The taxpayer has to decide whether to choose the new tax regime or remain in the old tax regime. This decision should be based on the tax saving deductions and exemptions for which the taxpayer is eligible in the old tax regime. The best method to compute which one is better, is to calculate a breakeven point for various levels of the income for a salaried individual who is below the age of 60 years.
The amount where there is no difference between the text liability of two tax regimes is known as a break even point. If the total eligible deductions and exemptions are higher than the break even threshold in the older tax regime, then stick to the older one or opt for the new tax regime.
Income Level |
Less: Standard Deduction |
Net Income |
Tax under both regimes |
Additional Deductions required in Old Regime to Break Even |
Which Tax Regime to choose? |
₹7,00,000 |
₹50,000 |
₹6,50,000 |
₹0 |
₹1,50,000 |
new regime. |
₹8,00,000 |
₹50,000 |
₹7,50,000 |
₹36,400 |
₹1,38,500 |
Old regime: if deductions > Rs 1,38,500 |
₹9,00,000 |
₹50,000 |
₹8,50,000 |
₹41,600 |
₹2,12,500 |
Old regime: if deductions > Rs 2,12,500 |
₹10,00,000 |
₹50,000 |
₹9,50,000 |
₹54,600 |
₹2,50,000 |
Old regime: if deductions > Rs. 2,50,000 |
₹12,50,000 |
₹50,000 |
₹12,00,000 |
₹93,600 |
₹3,12,500 |
Old regime: if deductions > Rs. 3,12,500 |
₹15,00,000 |
₹50,000 |
₹14,50,000 |
₹1,45,600 |
₹3,58,000 |
Old regime: if deductions > Rs. 3,58,000 |
₹15,50,000 |
₹50,000 |
₹15,00,000 |
₹1,56,000 |
₹3,75,000 |
Old regime: if deductions > Rs. 3,75,000 |
₹16,00,000 |
₹50,000 |
₹15,50,000 |
₹1,71,600 |
₹3,75,000 |
Old regime: if deductions > Rs. 3,75,000 |
Some of the computations which will be of help to you in making the decision which one to choose; the old or the new tax regime are listed below:
While making the decision of choosing one of the two tax regimes, the taxpayer must take in account the exemptions and deductions allowed under the regimes. The net taxable income can be determined by deducting all the eligible exemptions and deductions. By computing the tax liability using this net taxable income under the older tax regime, it becomes somewhat possible to compare the tax liabilities of both the regimes.
The logical approach in this regard would be to choose the regime which has a lower tax liability. The applicant must inform the employer about this choice, in order to ensure that the appropriate TDS is deducted from the salary.
In this blog, we discussed in detail the old and the new tax regime and which one is better. We discussed the differences between the two regimes, the break-even threshold in order to decide which one is better: the old or the new tax regime. We also discussed how to choose between the two.