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![New or Old Tax Regime](https://masterbrains.co.in/wp-content/uploads/2023/07/New-or-Old-Tax-Regime.jpg)
New Or Old Tax Regime? A Guide To Choosing Wisely
Overview of the new and old income tax regimes
The New Tax Regime was introduced during the Union Budget of 2020, offering lower slab rates and reduced tax rates for Individuals and HUFs. That’s how the Existing Tax Regime became the Old Tax Regime.
While the news of the reduced tax rates under the New Tax Regime was met with enthusiasm, it came with a catch. The new tax rates would only be applicable if no deductions were claimed from the total income, including Chapter VI A deductions or deductions for HRA and LTA from Salary Income.
The taxpayers have the flexibility to choose between the two regimes keeping in mind the benefits of the regime chosen. As a result, the majority of taxpayers found the Old Tax Regime to be more advantageous and showed little interest in the New Tax Regime.
Important changes introduced in Budget 2023 under New Tax Regime
The Finance Ministry recognized the shortcomings in the New Tax Regime. As a result, several significant changes were introduced in the Union Budget of 2023, with most of them relating to the New Tax Regime, which is as follows:
- The threshold for Section 87A increased from ₹5 lacs to ₹7 lacs.
- Salary Standard deduction is proposed at ₹ 50,000.
- The basic Exemption Threshold increased from ₹ 2.5 Lacs to ₹ 3 Lacs.
- The New Tax Regime has been made the default tax regime.
- The surcharge rate of 37% was reduced to 25% under the New Tax Regime.
- No changes were proposed in the Old Tax Regime.
- Marginal Relief for small taxpayers under the New Tax Regime.
How to choose between the New Tax Regime and Old Tax Regime
The first step towards deciding whether to opt for the New Tax Regime or the Old Tax Regime is to know the key difference between the two.
Tax Rates & Slabs of Old Tax Regime & New Tax Regime are applicable from 1st April 2023 onwards.
OLD TAX REGIME | NEW TAX REGIME | ||
Up to Rs. 2.5 lakh | Nil | Up to Rs. 3 lakh | Nil |
Rs. 2.5 lakhs to Rs. 5 lakhs | 5% | Rs. 3 lakh to Rs. 6 lakh | 5% |
Rs. 5 lakhs to 10 lakhs | 20% | Rs. 6 lakh to Rs. 9 lakh | 10% |
Income above 10 lakhs | 30% | Rs. 9 lakh to Rs. 12 lakh | 15% |
Rs. 12 lakh to Rs. 15 lakh | 20% | ||
Income above Rs. 15 lakh | 30% |
The grass is greener on the other side. The same is with choosing between the two Tax Regimes. As you decide to go for a particular tax regime, the other one looks more lucrative.
The below chart presents what you get and what you lose in a particular Tax Regime:
Old Tax Regime | New Tax Regime | |
Highest Tax Rate of 30% | Above 10 lacs | Above 15 lacs |
Basic Exemption Limit | Starts from 2.5 lacs | Starts from 3 lacs |
Threshold limit for rebate | 5 lacs | 7 lacs |
Standard Deduction | 50k | 50k |
Set off of brought forward business loss & unabsorbed depreciation | Allowed | Not allowed |
Deductions under Chapter VI A | Allowed | Not allowed |
Set off & Carry forward of House Property Loss | Allowed | Not allowed |
Deduction for interest on self-occupied property | Allowed | Not allowed |
HRA, Profession Tax, LTA exemption | Allowed | Not allowed |
Marginal Relief to small taxpayers | Not allowed | Allowed |
Employee’s own contribution to NPS | Allowed | Not allowed |
Donations to Political Parties | Allowed | Not allowed |
Old Tax Regime vs. New Tax Regime
- If you have c/f losses & unabsorbed depreciation, Old Regime is better
- If you have no investments under Chapter VI A, better to go for New Tax Regime
- The new Tax Regime is better if you don’t have extra deductions other than 80C
- Want to claim House Property Deductions? Go for Old Tax Regime
- Have income up to 7.5 lacs, enjoy zero tax with no investment obligations under New Tax Regime.
How New Tax Regime affects Self-employed Persons & Businessmen?
Following deductions and exemptions will not be allowed from business income under New Tax Regime
- Section 32 – Additional Depreciation
- Section 35AD – Deduction Capital Expenditure
- Section32AD – Investment Allowance
- Other deductions such as Section 33AB, Section 33ABA, Section 35, and Section 10AA are not allowed under New Tax Regime– Exemption for SEZ units
- Unabsorbed depreciation and business losses can be carried forward and set off in Old Tax Regime only
Importance of making an informed decision
The New Tax Regime is set to become the default tax regime from FY 2023-24 onwards. For salaried individuals, their TDS will be calculated based on the new provisions, making it important to evaluate which Tax Regime to adopt at the start of the FY.
For businesses, Advance Tax liability needs to be estimated at the beginning of the year. It is thus crucial to decide on the Tax Regime early to avoid penalties on non-payment of Advance tax and to ensure that you do not miss any opportunities to save taxes throughout the year.
Role of Tax Professionals and Advisors
There is a wealth of information available on various platforms about the suitability of each Tax Regime. However, since each case is unique, there cannot be a definitive answer as to which regime is best suited for a particular individual or business. It is always advisable to consult a tax professional who can assist in making the right selection.
At Master Brains, our team of experienced professionals can help you evaluate your tax situation, understand the pros and cons of each tax regime, and choose the one that best suits your needs. We offer a range of services that includes tax planning, return preparation, representation before tax authorities, drafting of replies for any show cause notices, succession planning, return review and much more. . Our consultants can also review your decision and help you change it while filing your ITR. Contact us today to schedule a consultation and maximize your tax savings.
FAQs on New Or Old Tax Regime? A Guide To Choosing Wisely
What is the significance of the surcharge rate reduction in the New Tax Regime?
The reduction in the surcharge rate from 37% to 25% under the New Tax Regime will lead to lower tax liability and enhanced savings for high-income earners.
Are there any specific exemptions or deductions unique to the New Tax Regime?
No, the New Tax Regime does not introduce any new exemptions or deductions; it primarily focuses on lower tax rates without deductions.
How do the Tax Regimes affect individuals with business losses?
Business losses can be carried forward and set off against future income only in the Old Tax Regime; they are not allowed in the New Tax Regime.
What is the process for calculating TDS (Tax Deducted at Source) under the New Tax Regime for salaried individuals?
Under the new Tax Regime, TDS will be calculated using new tax rates and without considering any deductions.
Are tax-saving investments under Section 80C still applicable in the New Tax Regime?
No, deductions under Section 80C are not allowed in the New Tax Regime, so individuals cannot claim benefits for investments like PPF, EPF, or ELSS.
How does the New Tax Regime affect senior citizens and their savings?
Senior citizens may need to reevaluate their investments and deductions as some exemptions available to them in the Old Tax Regime may not be available in the New Tax Regime.
Can a tax professional help me change my tax regime choice when filing my ITR?
Yes, tax professionals can review your situation and help you with your tax regime selection when filing your Income Tax Return (ITR).
What is the deadline for choosing a tax regime for a particular financial year?
From AY 2024-25 onwards, the new tax regime will be the default tax regime for all taxpayers. If you want to continuewithr the old tax regime, then you will have to specifically opt for it. The choice must be made at the beginning of the Financial Year.
Can individuals in the New Tax Regime claim deductions for contributions to the National Pension System (NPS)?
No, contributions to NPS are allowed as deductions in the Old Tax Regime but not in the New Tax Regime.
Is there any impact on individuals claiming Home Loan interest deductions in the New Tax Regime?
Yes, under the New Tax Regime, deductions for interest on self-occupied property are not allowed, whereas they are allowed in the Old Tax Regime.
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