Old and New Tax Regime

Currently, there are two income tax slabs from which a salaried individual has to choose one every year. The income tax rates for these slabs are different. The old income tax regime continues with the existing tax exemptions and deductions. The new income tax regime offers lower income tax rates and more slabs with no option of availing tax exemptions and deductions. These tax slabs under the new tax regime has been revised from April 1, 2023. Additionally, the new income tax system is adopted as the default tax system. Individuals will, however, have the choice to stick with the previous income tax system. The highest rate surcharge has been decreased by the government from 37% to 25% under the new tax system. The finance minister has proposed new income slabs that will reduce the middle-income earner group's overall tax burden in FY 2023–2024.


 

The amended income tax rates under the new tax law for the financial year 2023–24 (AY 2024-25)

Income Tax slabs under new tax regimeIncome Tax rates under new tax regime
0 to 3 Lakh0
Rs 3 Lakh to Rs 6 Lakh5%
Rs 6 Lakh to Rs 9 Lakh10%
Rs 9 Lakh to Rs 12 Lakh15%
Rs 12 Lakh to Rs 15 Lakh20%
Above Rs 15 Lakh30%

Ongoing through the above, it is to be noted that following deductions/benefits shall not be available in case if Individual adopts for new tax structure: -

1. All the deductions under Chapter VI-A other than deduction under section 80CCD(1B) & standard deduction of Rs 52,500 will not be eligible which means deduction of Rs.1,50,000/- in respect of long-term savings like life insurance scheme, contribution to PF, PPF and NPS, NSC, long term fixed deposits etc. shall not be available in case the individual opts to pay tax at new rates. Deduction on account of donation under section 80G, deduction on account of interest on loan taken for higher education under section 80E, deduction on account of interest on saving bank account of Rs.10,000/- under Section 80TTA shall also not be available.

Comparative analysis of alternate tax with regular tax rates

IncomeTax liability as per old structureTax liability as per new structureTax savings under new option
Up to 5 Lakh---
Rs 7 Lakh54600Upto 7 Lakh (Nil)54600
Rs 8 Lakh754003640039000
Rs 9 Lakh962004680049400
Rs 10 Lakh1170006240054600
Rs 12 Lakh1794009360085800
Rs 15 Lakh273000156000117000

However, considering the fact that all exemptions and deductions shall not be available, it may not be advisable to exercise such option particularly in the case of salaried taxpayers as the benefit of the exemption/deduction foregone will be far higher as compared to the reduced tax rates. The below table depicts the impact of such new provision in respect of individuals or HUF’s having different level of income who are claiming deduction of Rs.50,000, Rs.1,00,000, Rs. 1,50,000, Rs. 2,00,000, Rs. 2,50,000, Rs. 3,00,000 and Rs. 350000


 

A) Cases where deductions and exemptions are being availed upto Rs.50,000/-

Total Income of the Assessee before availing deductions/exemptionsTax liability as per the old structure (after taking benefit of deductions and exemptions)Tax liability under new structure (without benefit of deductions and exemptions)Savings under the new regime
70000044200-44200
800000650003640028600
10000001066006240044200
130000019500011440080600
1700000319800218400101400
2000000413400312000101400

B) Cases where deductions and exemptions are being availed upto Rs.1,00,000/-

Total Income of the Assessee before availing deductions/exemptionsTax liability as per the old structure (after taking benefit of deductions and exemptions)Tax liability under new structure (without benefit of deductions and exemptions)Savings under the new regime
70000033800-33800
800000546003640018200
1000000962006240033800
130000017940011440065000
170000030420021840085800
200000039780031200085800

C) Cases where deductions and exemptions are being availed upto Rs.1,50,000/-

Total Income of the Assessee before availing deductions/exemptionsTax liability as per the old structure (after taking benefit of deductions and exemptions)Tax liability under new structure (without benefit of deductions and exemptions)Savings under the new regime
70000023400-23400
80000044200364007800
1000000858006240023400
130000016380011440049400
170000028860021840070200
200000038220031200070200

D) Cases where deductions and exemptions are being availed upto Rs.2,00,000/-

Total Income of the Assessee before availing deductions/exemptionsTax liability as per the old structure (after taking benefit of deductions and exemptions)Tax liability under new structure (without benefit of deductions and exemptions)Savings under the new regime
700000---
8000003380036400(2600)
1000000754006240013000
130000014820011440033800
170000027300021840054600
200000036660031200054600

E) Cases where deductions/ exemptions are being availed upto Rs.2,50,000/-

Total Income of the Assessee before availing deductions/exemptionsTax liability as per the old structure (after taking benefit of deductions and exemptions)Tax liability under new structure (without benefit of deductions and exemptions)Savings under the new regime
700000---
8000002340036400(13000)
100000065000624002600
130000013260011440018200
170000025740021840039000
200000035100031200039000

F) Cases where deductions and exemptions are being availed upto Rs.3,00,000/-

Total Income of the Assessee before availing deductions/exemptionsTax liability as per the old structure (after taking benefit of deductions and exemptions)Tax liability under new structure (without benefit of deductions and exemptions)Savings under the new regime
700000-- 
800000-36400(36400)
10000005460062400(7800)
13000001170001144002600
170000024180021840023400
200000033540031200023400

G) Cases where deductions and exemptions are being availed upto Rs.3,50,000/-

Total Income of the Assessee before availing deductions/exemptionsTax liability as per the old structure (after taking benefit of deductions and exemptions)Tax liability under new structure (without benefit of deductions and exemptions)Savings under the new regime
700000-- 
800000-36400(36400)
10000004420062400(18200)
1300000106600114400(7800)
17000002262002184007800
20000003198003120007800

Whether such exemptions and deductions are eliminated, and the tax rates are subsequently lowered, will have an effect on the taxpayer is a moot point. The eventual tax payment is something that the taxpayer anticipates, therefore if even after a drop in tax rates, the total amount due as a result of the removal of exemptions or deductions increases, the taxpayer will not be happy with that situation. Given the analysis shown above, it is clear that the new alternative tax rate and the ensuing removal of the exemption and deduction may not significantly lower the net tax liability of a large number of taxpayers. Consequently, a sizable proportion of taxpayers would decide to continue to be subject to the current tax slab rates rather than choosing to pay tax under these new tax slabs.