New vs old income tax regime: To provide some relief to the middle class, Finance Minister Nirmala Sitharaman tweaked the slabs

While presenting Union Budget 2023 on 1 February, Finance Minister Nirmala Sitharaman announced several changes for the taxpayers. The Finance Minister proposed to make the new income tax regime the default one for taxation purposes effective 1 April 2023. However, if the taxpayers want to continue with the old one, they will have to opt for it

The new income tax regime which was introduced in 2020 has few takers. Taxpayers are in a dilemma when it comes to choosing between the two.

To provide some relief to the middle class, Finance Minister Nirmala Sitharaman  tweaked the slabs by announcing that no tax would be levied on annual income of up to ₹7 lakh under the new tax regime.

"It is proposed to increase the rebate for the resident individual under the new regime so that they do not pay tax if their total income is up to ₹7 lakh," Sitharaman said.

She further said under the new personal income tax regime, the number of slabs would be reduced to five.

The old tax regime that comes with exemptions on certain investments and expenditures will remain attractive for tax payers who pay house rent or have a home loan.

According to Pankaj Mathpal, MD & CEO at Optima Money Managers, individuals who are in job for the last 10-15 years should opt for old tax regime as it provides deductions - HRA exemption, standard deduction, Professional tax, Section 80C, Section 80CCD(1B) and Section 80D. They would lose out on these deductions if they opt for the new tax regime.

He further added that those who are in nascent phase of one's career can opt for the new tax regime as it would prove beneficial for them.

In addition to HRA deductions, individuals can also claim deduction on interest on their home loan under old tax regime.

“In simple words, the enhancement of this limit to seven lakh rupees means that the person whose income is less than Rs.7 lakhs need not invest anything to claim exemptions and the entire income would be tax-free irrespective of the quantum of investment made by such an individual. This will result in giving more consumption power to the middle-class income group as they could spend the entire amount of income without bothering too much about investment schemes to take the benefit of exemptions" explained Abhishek A Rastogi, Founder of Rastogi Chambers.

Gross Income- ₹7 lakh

Tax Payable- Nil

Gross Income- ₹10 lakh

Tax Payable - ₹54,600

Gross Income- ₹20 lakh

Tax Payable- ₹2,96,400

Gross Income- ₹35 lakh

Tax Payable- ₹7,64,000

Gross Income- ₹55 lakh

Tax Payable- ₹15,27,240

How much tax will you pay if you opt for old income tax regime

Gross Income- ₹7 lakh

Tax Payable-   ₹22,901

Gross Income- ₹10 lakh

Tax Payable - ₹31,221

Gross Income- ₹20 lakh

Tax Payable- ₹2,88,371

Gross Income- ₹35 lakh

Tax Payable- ₹7,26,211

Gross Income- ₹55 Lakh

Tax Payable- ₹15,69,316

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