In the Union Budget 2023, Finance Minister introduced certain amendments to 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, so that you can make an informed choice.
Important Note: For FY 2022-23, you can still choose either the old tax regime or opt for the new regime, depending on which offers you a lower tax outgo for AY 2024-25. However, if you do not choose the old tax regime, from AY 24-25 onwards, the new tax regime will be the default options.
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 vs the old tax regime:
New vs. Old Tax Regime FY23 for Individuals (<60 years) & HUF
The below table shows the slab rates applicable in case of individuals under 60 years of age and HUF as per the old and new tax regimes in India.
Annual Taxable Income | New Tax Regime Slab Rates | Old Tax Regime Slab Rates |
Up to Rs.2.5 lakh | Exempt | Exempt |
Over Rs.2.5 lakh to Rs.3 lakh | Exempt | 5% |
Over Rs.3 lakh to Rs. 5 lakh | 5% | 5% |
Over Rs.5 lakh to Rs.6 lakh | 5% | 20% |
Over Rs.6 lakh to Rs. 9 lakh | 10% | 20% |
Over Rs.9 lakh to Rs.10 lakh | 15% | 20% |
Over Rs.10 lakh to Rs.12 lakh | 15% | 30% |
Over Rs.12 lakh to Rs.15 lakh | 20% | 30% |
Above Rs.15 lakh | 30% | 30% |
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%.
Comparing the Tax Payable Under New vs. Old Tax Regime for FY 23-24
Due to the changes made in the new tax regime for AY 24-25, in many cases, individuals may end up paying lower income tax by moving to the new regime in FY 23-24. The below table shows how much income tax is payable (including cess) for different taxable income during FY 2023-2024:
Tax Payable under New Vs. Old Tax Regime for AY 24-25 | ||
Taxable Income for FY 23-24 (Rs.) | Tax Payable Under Old Regime (Rs.) | Tax Payable Under New Regime (Rs.) |
7 lakh | 54,600 | Nil due to Section 87A rebate |
10 lakh | 1.17 lakh | 62,400 |
12 lakh | 1.79 lakh | 93,600 |
15 lakh | 2.73 lakh | 1.56 lakh |
18 lakh | 3.67 lakh | 2.49 lakh |
20 lakh | 4.29 lakh | 3.12 lakh |
23 lakh | 5.23 lakh | 4.06 lakh |
As you can see, for a range of different taxable income in FY 2023-24, the new tax regime will result in lower income tax payable for the tax payer. However, one should note that the above calculation does not take into account any deductions that might be applicable on the gross income if one chooses the new tax regime. However, it is advisable that you use an income tax calculator in order to figure out if you are better off by selecting the new tax regime instead of the old one in AY 24-25.
New Tax Regime 2022 vs New Tax Regime 2023 Calculation
Let’s crunch a few numbers to figure out whether the amended new tax regime of Budget 2023 is better than the 2022 version of the new regime that is in effect for AY 23-24:
Suppose you earn Rs 7 lakhs. Your tax calculation using slab rates of new tax regime FY 2022-2023 would have been:
Income Slab | Income Tax Payable |
Up to Rs. 2.5 lakh | No Tax |
Next Rs. 2.5 lakh (@5% slab rate) | (+)Rs. 12,500 |
Remaining Rs. 2 lakh (@10% slab rate) | (+)Rs. 20,000 |
Total Tax Payable on Rs. 7 lakh | Rs. 32,500 |
After the Budget 2023 announcement of the amended new tax regime for AY 2024-25, the income tax calculation will be as shown below:
Income Slab | Income Tax Payable |
Up to Rs. 3 lakh | No Tax |
Next Rs. 3 lakh (@5% slab rate) | (+) Rs. 15,000 |
Remaining Rs. 1 lakh (@10% slab rate) | (+) Rs. 10,000 |
Less Standard Deduction of 50,000 (@10% rate) | (-) Rs. 5,000 |
Calculated Tax on Rs. 7 lakh | Rs. 20,000 |
Less Rebate under Section 87A | (-) Rs. 20,000 |
Total Tax Payable on Rs. 7 lakh | Nil |
As part of the new tax regime amendment, rebate under Section 87A can be availed by those who opt for the new tax regime in FY 23-24. So, actual tax payable is nil for those with annual taxable income of Rs. 7 lakh (after standard deduction) opting for the amended new tax regime.
The below table compares the tax payable (including cess) under the earlier new tax regime vs the amended new tax regime:
Taxable Income (Rs.) | Tax Payable Under Earlier New Tax Regime (Rs.) | Tax Payable Under Amended New Tax Regime (Rs.) |
9 lakh | 62,400 | 46,800 |
12 lakh | 1.20 lakh | 93,600 |
15 lakh | 1.95 lakh | 1.56 lakh |
18 lakh | 2.89 lakh | 2.50 lakh |
20 lakh | 3.51 lakh | 3.12 lakh |
As you can see, the amended new tax regime is not just better than the old tax regime for various taxable income, but it also turns out to be better than the earlier iteration of the new tax regime. So, in case you have selected the new regime during the current assessment year, you should definitely consider sticking to the new tax regime in FY 23-24.
Old vs New Tax Regime 2023: FAQs
In the revised new tax regime as presented in Union Budget 2023, income tax slabs for FY 2023-24 are: 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.