The Hon’ble Finance Minister presented the budget for the fiscal year 2023-24 with the basic intention of minimum government – maximum governance and reduction of overlapping compliances. In the same spirit and in order to increase the popularity of new tax regime among individuals and HUFs, the Government has announced majority of its amendments in the new tax regime prescribed under section 115BAC of the Income-tax Act, 1961 (‘IT Act’). Whereas there were no changes made under any provisions of the Act which affects the tax payer opting for the old tax regime.
Following key amendments have been announced under the new tax regime in the budget 2023. A comparison of proposed new tax regime vis-à-vis the old tax regime is provided below:
Proposed rates for FY 2023-24 | |
Total income | Rate |
Up to 3,00,000 | NIL |
3,00,001 – 6,00,000 | 5% |
6,00,001 – 9,00,000 | 10% |
9,00,001 – 12,00,000 | 15% |
12,00,001 – 15,00,000 | 20% |
Above 15,00,000 | 30% |
Tax rates under old regime | |
Total income | Rate |
Up to 2,50,000 | NIL |
2,51,001 – 5,00,000 | 5% |
5,00,001 – 10,00,000 | 20% |
Above 10,00,000 | 30% |
The above deductions and exemptions are not available under new regime. However, the following important deductions are available under both the tax regimes:
With effect from AY 2024-25, the new tax regime has been made a default regime. Hence, now if a tax payer wants to continue with the old regime, he will have to opt for it in a prescribed manner.
In case of individual or HUF with business or professional income, they can opt for the old regime before the due date of filing the return of income. Further, they have the option to come back to the new tax regime only once in their lifetime unless the individual or HUF ceases to have any business or professional income.
In case of individual or HUF who do not have business or professional income, the selection of old tax regime need to be done on a year-on-year basis.
Let’s try to understand the difference between old regime and new regime with few illustrations.
Illustration 1 – Salaried person
Old tax regime | New tax regime | |||
Particulars | Amount |
| Particulars | Amount |
Salary after Std deduction | 15,00,000 |
| Salary after Std deduction | 15,00,000 |
Interest income | 1,00,000 |
| Interest income | 1,00,000 |
Total | 16,00,000 |
| Total | 16,00,000 |
Less: Deductions |
|
| Less: Deductions |
|
80C | (1,50,000) |
| None |
|
NPS – 80CCD(1b) | (50,000) |
|
|
|
HRA | (4,20,000) |
|
|
|
Medical insurance – self | (25,000) |
|
|
|
Medical insurance – parents | (25,000) |
|
|
|
80TTA | (10,000) |
|
|
|
Total taxable income | 9,20,000 |
| Total taxable income | 16,00,000 |
Tax on above | 96,500 |
| Tax on above | 1,80,000 |
*Assumption – Rent payment of 40,000 per month and a basic salary of 6,00,000 p.a.
Illustration 2 – Salaried person
Old tax regime | New tax regime | |||
Particulars | Amount |
| Particulars | Amount |
Salary after Std deduction | 30,00,000 |
| Salary after Std deduction | 30,00,000 |
Interest income | 3,00,000 |
| Interest income | 3,00,000 |
Total | 33,00,000 |
| Total | 33,00,000 |
Less: Deductions |
|
| Less: Deductions |
|
80C | (1,50,000) |
| None |
|
NPS – 80CCD(1b) | (50,000) |
|
|
|
HRA | (5,10,000) |
|
|
|
Medical insurance – self | (25,000) |
|
|
|
Medical insurance – parents | (25,000) |
|
|
|
80TTA | (10,000) |
|
|
|
Total taxable income | 25,30,000 |
| Total taxable income | 33,00,000 |
Tax on above | 5,71,500 |
| Tax on above | 6,90,000 |
*Assumption–Rent payment of 55,000 per month and a basic salary of 15,00,000 p.a.
Illustration 3 – Business / professional income with home loan
Old tax regime | New tax regime | |||
Particulars | Amount |
| Particulars | Amount |
Business/prof income | 20,00,000 |
| Salary after Std deduction | 20,00,000 |
Interest income | 1,50,000 |
| Interest income | 1,50,000 |
Total | 21,50,000 |
| Total | 21,50,000 |
Less: Deductions |
|
| Less: Deductions |
|
80C | (1,50,000) |
| None |
|
NPS – 80CCD(1b) | (50,000) |
|
|
|
Interest on home loan | (2,00,000) |
|
|
|
Medical insurance – self | (25,000) |
|
|
|
Medical insurance – parents | (25,000) |
|
|
|
80TTA | (10,000) |
|
|
|
Total taxable income | 16,90,000 |
| Total taxable income | 21,50,000 |
Tax on above | 3,19,500 |
| Tax on above | 3,45,000 |
Illustration 4 – Business / professional income without home loan
Old tax regime | New tax regime | |||
Particulars | Amount |
| Particulars | Amount |
Business/prof income | 20,00,000 |
| Salary after Std deduction | 20,00,000 |
Interest income | 1,50,000 |
| Interest income | 1,50,000 |
Total | 21,50,000 |
| Total | 21,50,000 |
Less: Deductions |
|
| Less: Deductions |
|
80C | (1,50,000) |
| None |
|
NPS – 80CCD(1b) | (50,000) |
|
|
|
Medical insurance – self | (25,000) |
|
|
|
Medical insurance – parents | (25,000) |
|
|
|
80TTA | (10,000) |
|
|
|
Total taxable income | 18,90,000 |
| Total taxable income | 21,50,000 |
Tax on above | 3,79,500 |
| Tax on above | 3,45,000 |
Though the Government is trying to push the tax payer to opt for the new tax regime, the old one seems to look more lucrative with the number of deductions available to the tax payer. As evident from the above illustration, a tax payer who has house rent or home loan interest liability, may always want to remain in the old regime to avail the tax benefit on such large payments. Each tax payer should evaluate which option is better for them depending upon the facts of each tax payer.
However, it is likely that the Government may eventually make the new regime further lucrative and gradually make it mandatory in the coming years.
Authors:
Karan Vakharia
Partner | Email: [email protected] | LinkedIn Profile
Nishika Acharya
Associate Consultant | Email: [email protected] | LinkedIn Profile
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