In her budget speech for Union Budget 2023, Finance Minister introduced certain amendments in the new tax regime.
In this post, we have highlighted the differences in the new tax regime and the old tax regime, i.e. comparison of New vs Old Tax Regime.
Important Note: The Old Tax Regime or Scheme is still applicable. You can choose from either old tax regime in which slabs start from Rs 2.5 lakhs or the revised new tax regime for FY 2023-24 and AY 2024-25.
New Tax Regime vs. Old Tax Regime: A comparison
Firstly, let’s look at the income tax slab rates 2023 as per the revised new tax regime:
New Tax Regime: Income Tax Slabs 2023
|Revised New Tax Regime – Default Regime from 1st Apr ‘23|
(revised as per Union Budget 2023)
|Income Slab||Income Tax Rate|
|0 – ₹ 3,00,000||Nil|
|₹ 3,00,000 – ₹ 6,00,000||5%|
|₹ 6,00,000 -₹ 9,00,000||10%|
|₹ 9,00,00 – ₹ 12,00,000||15%|
|₹ 12,00,000 – ₹ 15,00,000||20%|
|Above ₹ 15,00,000||30%|
Now, let’s look at the income tax slab rates as per the old tax regime for FY 2023-24:
Old Tax Regime: Income Tax Slabs 2023
|Old Tax Regime|
(traditional method which is still applicable as second option)
|Income Slab||Income Tax Rate|
|0 – ₹ 2,50,000||NIL|
|₹ 2,50,000 – ₹ 5,00,000||5% (5% of the amount by which the total income exceeds Rs. 2,50,000)|
|₹ 5,00,000 – ₹ 10,00,000||20% (Rs. 12,500 plus 20% of the amount by which the total income exceeds Rs. 5,00,000)|
|Above ₹10,00,000||30% (Rs. 1,12,500 plus 30% of the amount by which the total income exceeds Rs.10,00,000)|
For More Details: New Income Tax Slab: 2023
Now, let’s compare these two with the help of an example.
5 Major Changes in New Tax Regime 2023
The following mentioned are the major changes or amendments present in the Union Budget 2023 by Finance Minister:
- Rebate increased from Rs 5 lakhs to Rs 7 lakhs: This means that if your annual income is Rs 7 lakhs, you get full rebate of the income tax paid by you. This rebate will be credited to you after you file your ITR. So saying that there will be no income tax for those with Rs 7 lakhs of income won’t be wrong.
- Basic exemption limit increased to Rs 3 lakhs: Earlier, the basic income tax exemption limit was Rs 2.5 lakhs, which basically meant that those with this much annual income will not be charged with any income tax. This has been increased by Rs 50,000 and the new basic exemption limit for FY 2023-24 and AY 2024-25 is Rs 3 lakhs.
- Reduction in number of slabs: In the new tax regime 2023, tax slabs have been reduced from the previous 6 slabs to 5 now. Earlier, there was an increment of Rs 2.5 lakhs in each slab which has changed to Rs 3 lakhs of increment in each slab, making it 5 slabs only.
- Standard Deduction introduced: For salaried persons (individual tax payers) and pensioners, there is a standard deduction of Rs 50,000 which is applicable irrespective of your annual income. You may be earning Rs 10 lakhs, Rs 7 lakhs or Rs 1 crore, you will get this standard deduction of Rs 50,000 when filing ITR.
- Surcharge reduced from 37% to 25%: If your income is above Rs 50 lakhs, you are required to pay a surcharge starting from 10%. The highest for this was 37% previously but now, as per the new tax regime, highest surcharge slab rate is reduced to 25%.
Old Tax Regime 2023 vs. New Tax Regime 2023
Suppose your annual gross total income is Rs 8 lakhs and you can claim Section 80C deduction as well as House Rent Allowance.
As per Old Tax Regime 2023: You’ve claimed Rs 1.5 lakhs of 80C deductions and HRA of Rs 1 lakh. Now your net total income after exemptions will be Rs 5.5 lakhs. Now, your income tax will be calculated as such:
- The first Rs 2.5 lakhs will be exempt, i.e. No Tax
- Next Rs 2.5 lakhs will be taxed at 5% tax rate = 5% of Rs 2.5 lakhs = Rs 12,500
- Remaining Rs 50,000 will be taxed at 20% tax rate = 20% of Rs 50,000 = Rs 10,000
Total income tax that you will pay on your net income will be Rs 22,500 as per the Old Tax Regime.
As per New Tax Regime 2023: There will not be any exemptions. Your income tax calculation will be:
- The first Rs 3 lakhs will be exempt, i.e. No Tax
- Next Rs 3 lakhs will be taxed at 5% tax rate = 5% of Rs 3 lakhs = Rs 15,000
- Remaining Rs 2 lakhs will be taxed at 10% tax rate = 10% of Rs 2 lakhs = Rs 20,000
Total income tax that you will pay on your net income will be Rs 35,000 as per the New Tax Regime.
Existing New Tax Regime 2022 vs. Revised New Tax Regime 2023
Now, let’s understand the amendments made in the New Tax Regime:
|Existing New Tax Regime 2022-23|
Revised New Tax Regime 2023-24
|Income Slab||Income Tax Rate||Income Slab||Income Tax Rate|
|Up to ₹ 2,50,000||Nil||0 – ₹ 3,00,000||Nil|
|₹ 2,50,001 – ₹ 5,00,000||5%||₹ 3,00,000 – ₹ 6,00,000||5%|
|₹ 5,00,001-₹ 7,50,000||10%||₹ 6,00,001 -₹ 9,00,000||10%|
|₹ 7,50,001 – ₹ 10,00,000||15%||₹ 9,00,01 – ₹ 12,00,000||15%|
|₹10,00,001 – ₹12,50,000||20%||₹ 12,00,001 – ₹ 15,00,000||20%|
|₹12,50,001 – ₹15,00,000||25%||Above ₹ 15,00,000||30%|
|Above ₹ 15,00,000||30%||–||–|
Example: Suppose you earn Rs 7 lakhs.
Your tax calculation previously would have been:
- First Rs 2.5 lakhs, No tax
- Next Rs 2.5 lakhs, 5% tax = 5% of 2,50,000 = Rs 12,500
- Remaining Rs 2 lakhs, 10% tax = 10% of 2,00,000 = Rs 20,000
Total income tax deducted = Rs 35,000
Your tax calculation now will be:
- First Rs 3 lakhs, No tax
- Next Rs 3 lakhs, 5% tax = 5% of 3,00,000 = Rs 15,000
- Remaining Rs 1 lakhs, 10% tax = 10% of 1,00,000 = Rs 10,000
Total income tax deducted = Rs 30,000
But now, this amount will be refunded to you as tax rebate when you file your ITR. So, your actual income tax paid will become Rs 0.
Old vs New Tax Regime 2023: FAQs
In the revised new tax regime as presented in Union Budget 2023,income tax slabs for FY 2023-24are: Salary up to Rs 3 lakhs – No tax; Above Rs 3 lakhs to Rs 6 lakhs – 5%; Above Rs 6 lakhs to Rs 9 lakhs – 10%; Above Rs 9 lakhs to Rs 12 lakhs – 15%; Above Rs 12 lakhs to Rs 15 lakhs – 20% and salary Above Rs 15 lakhs – 30% tax.
Yes. Tax payers will have two options to choose from, as earlier. However, now the revised new tax regime 2023 will be the default system of paying income taxes.
Contrary to the previous income tax rebate on salary of up to Rs 5 lakhs, the government will now refund full income tax paid by the taxpayers if there annual income is up to Rs 7 lakhs. This is the major difference in new vs old tax regime, after the Union Budget 2023.
No, in most probable cases, your company will not deduct TDS on annual income of Rs 7 lakhs or less.