Budget 2023 has brought many changes under the Income Tax Act, 1961, These new announcements have asked tax payers to do their tax planning at the beginning of the year itself (i.e. in April 2023). We want to help you make informed decision for choosing your tax regime.
It is important to know that from Year 2023-24, the New Tax Regime has been made a default option. So if you miss to change or inform your employer your choice of tax regime, the taxes will be deducted on the basis of new income tax slabs under the New Tax Regime.
According to a Central Board of Direct Taxes (CBDT) circular dated April 13, 2020, once the individual chooses his tax regime option, it cannot be changed during the financial year. The employer will continue to deduct taxes on salary on the basis of the tax regime option communicated in April.
Also note that if you have missed to inform your employer about your tax regime option or you have selected the wrong option while deciding your choice and it has resulted in receiving reduced pay every month, you still have a chance to correct this at the time of filing your ITR.
Budget 2023 has introduced new incentives for the New Tax Regime to make more people choose this option over the old regime.
But before you reach any decision, let us see some more details about both tax regimes closely.
New Tax Regime
It was first introduced in Budget 2020 to the taxpayers. It included several tax slabs changes and concessional offers to tax rates which may allow taxpayers to choose this option over the old regime.
However if you choose New Tax Regime, you cannot claim HRA, LTA, 80C, 80D and several other exemptions and deductions.
Due to this, there were very few taxpayers who chose the New Tax Regime as their final option.
For this year, the Government is trying to encourage taxpayers to choose New Tax Regime by making some of key changes like
- Full tax rebate on an income up to ₹7 lakhs – it means, taxpayers with an income of up to ₹7 lakhs will not have to pay any tax at all under the new tax regime.
- Tax exemption limits increased to ₹3 lakhs to the previous ₹2.5 lakhs
- Standard deduction of ₹50,000, is now also applicable for New Regime. Thus along with the rebate, makes it ₹7.5 Lakhs as your tax-free income
- Those receiving family pension can claim a deduction of: ₹15,000 or 1/3rd of pension, whichever is lower
- Higher Leave Encashment Exemption up to ₹25 lakhs
- Reduced Surcharge Rate for High Net Worth Individuals on income over ₹5 crores, reduced from 37% to 25%.
New Regime Income Tax Slab For People Below 60 Years Of Age – For Financial Year 2023-24
| Tax Slab | Rate of Tax
(New Tax Regime, From 1st April 2023 ) |
| up to ₹3,00,000 | No Tax |
| ₹3,00,001- ₹6,00,000 | 5% on income which exceeds ₹3,00,000 |
| ₹6,00,001- ₹9,00,000 | 10% on income above ₹6,00,000 + ₹15,000 |
| ₹9,00,001- ₹12,00,000 | 15% on income which exceeds ₹9,00,000 + ₹45,000 |
| ₹12,00,001- ₹15,00,000 | 20% on income which exceeds ₹12,00,000 + ₹90,000 |
| ₹15,00,001 and above | 30% on income which exceeds ₹15,00,000 + ₹150,000 |
Income Tax Slab For People Between 60 – 80 Years Of Age – For Financial Year 2023-24
| Tax Slab | Rate |
| up to ₹3,00,000 | No Tax |
| ₹3,00,001 – ₹5,00,000 | 5% |
| ₹5,00,001 – ₹10,00,000 | 20% |
| ₹10,00,001 and above | 30% |
Income Tax Slab For People Above 80 Years Of Age – For Financial Year 2023-24
| Tax Slab | Rate |
| up to ₹5,00,000 | No Tax |
| ₹5,00,001 – ₹10,00,000 | 20% |
| ₹10,00,001 and above | 30% |
Old Tax Regime
Old Tax Regime exemptions and deduction options are the same as before.
It is important to note that Section 80C which allows for a reduction of taxable income up to ₹1.5 Lakhs is something additional, in the Old Tax Regime over New.
It also allows you to claim exemptions and deductions like LTA, HRA and many more that can further reduce your taxable income and lower tax payments.
Old Regime Income Tax Slab For People Below 60 Years Of Age – For Financial Year 2023-24
| Tax Slab | Rate |
| up to ₹2,50,000 | No Tax |
| ₹2,50,001 – ₹5,00,000 | 5% |
| ₹5,00,000 – ₹10,00,000 | 20% |
| ₹10,00,000 and above | 30% |
Compare – Old vs New Tax Regime:
| Total Income Slabs | Old Tax Regime | New Tax Regime
(From 1st April, 2023) |
| ₹0 – ₹2,50,000 | Zero | Zero |
| ₹2,50,001 – ₹3,00,000 | 5% | Zero |
| ₹3,00,001 – ₹5,00,000 | 5% | 5% |
| ₹5,00,001 – ₹6,00,000 | 20% | 5% |
| ₹6,00,001 – ₹7,50,000 | 20% | 10% |
| ₹7,50,001 – ₹9,00,000 | 20% | 10% |
| ₹9,00,001 – ₹10,00,000 | 20% | 15% |
| ₹10,00,001 – ₹12,00,000 | 30% | 15% |
| ₹12,00,001 – ₹12,50,000 | 30% | 20% |
| ₹12,50,001 – ₹15,00,000 | 30% | 20% |
| above ₹15,00,001 | 30% | 30% |
Surcharges
Surcharges applicable are as per below tax rates in all categories
| Income More Than | Income Tax |
| ₹50,00,000 or above | 10% |
| ₹1 Cr and Above | 15% |
| ₹2 Cr and Above | 25% |
| ₹5 Cr and Above | 37% |
Note – In the Budget for the year 2023, the highest surcharge rate of 37% has been decreased to 25% under the New Tax Regime (Meant to be applicable from April 1st, 2023)
How to choose between Old vs New Tax Regime
The decision to choose Old Regime over New Regime is mostly based on utilizing the claims options an individual can utilize to reduce his taxable amount which favors him to save more.
Firstly, calculate the tax exemptions and deductions that you can claim under both Regimes.
After arriving at the Net Taxable Income under individual Tax Regimes (after subtracting all deductions and exemptions) the taxable liability will be visible.
Then it will be easy for you to choose which option is more beneficial.
Frequently Asked Questions
What is the basic exemption limit under the new tax regime for Financial Year 2023-24?
The basic income exemption limit is ₹ 3 lakh from April 1, 2023. Earlier it was ₹ 2.5 lakh.
Which deductions can be claimed under the new tax regime for Financial Year 2023?
Budget 2023 has allowed standard deduction of ₹ 50,000 for salaried and pensioners. Apart from this, they can claim deduction under Section 80CCD (2) of the Income-tax Act, 1961.
What is the tax rebate available under Section 87A under the new tax regime?
A tax rebate of Rs 25,000 is available under the new tax regime from FY 2023-24. This tax rebate is applicable for all individuals whose taxable income does not exceed Rs 7 lakh. This would make effective tax outgo zero.
How to calculate the age of a senior citizen for income tax?
Individual above the age of 60 years is regarded as a senior citizen whereas an individual above 80 years is regarded as a super senior citizen for the purpose of income tax.
If my income is less than ₹2,50,000 then is it still essential for me to submit an Income Tax Return ?
If your yearly Income is less than ₹2,50,000, you do not need to file an ITR, but you need to file a ‘Nil Return’ only for the record as you can use it as proof of employment in many circumstances.
How much income is tax free in India?
Individual below 60 years of age are not required to pay tax upto the income limit of ₹ 2.5 Lakh.Individuals above 60 years but less than 80 years of age are not required to pay tax upto ₹ 3 lakh of income. Individuals above 80 years are not required to pay tax upto ₹ 5 lakh of income. The basic exemption limit for all the individuals under the new tax regime is ₹ 3 lakh, irrespective of age.
Will an Agriculture income be also taxed?
Any money earned by agriculture or related activities will not be taxed. However, it will be taken into account for calculating the tax on any non-agricultural income you may have.