The moment of truth is here
02-Feb-2023 •Shruti Agarwal
No sooner had the finance minister Nirmala Sitharaman uttered the following words - "I propose to increase the rebate limit to Rs 7 lakh." - the Lok Sabha roared to life. At that moment, it seemed surreal how even this high-powered room celebrated something that mostly concerned ordinary middle-class folks. Alas, the joy was short-lived, cruelly cut short. As soon as the rapturous applause started ebbing, Sitharaman, like a comedian dropping a punchline, added: "In the new tax regime." It was a punchline, no doubt. At least for the old tax regime.
The old order swung from the extremes of joy to despair in a matter of seconds.
Meanwhile, the relatively shiny, newly-minted tax regime - which came into existence in Budget 2020 - was showered with plenty of attention. If there was ever a change of guard, this was it. But is it? Let's see how the numbers stack up for the old and the new.
Prominent changes in the new tax regime
Confused between the old and new tax regime? This tax calculator gives you the answer.
Battle of old vs new
Based on these changes, let's understand which tax system emerges victorious under various income scenarios.
Income of up to Rs 7 lakh
For people with an income of Rs 7 lakh per annum or below, the new tax regime is a stress-free option, as it does not attract any tax up to this amount.
Neither would you pay any tax under the old system. But to do so, you'd have to claim the standard deduction of Rs 50,000 and 80C benefit of Rs 1.5 lakh.
Result: 1-1. Slight edge to the new regime for convenience.
Income above Rs 7 lakh
This budget's tender loving care has definitely made the new tax regime sweeter than its previous avatar.
However, for most people, old remains gold, provided you can make good use of the available deductions and exemptions.
That's because, despite the lower tax rates, the new structure does not have many prominent deductions and exemptions, such as house rent allowance (HRA), deductions under Sections 80C and 80D and interest on loan for house property.
Result: Old tax system 2-1 New regime
The calculations above are before taking HRA into account. Including HRA would further bolster the case for the older tax regime.
What you should do
If you can take advantage of the deductions and exemptions, chances are the old tax structure is better for you. However, you will have to compare the two options at an individual level.
Use our tax calculator to know which tax regime is more beneficial for you.
Since the government has now made the new tax regime the default option for us, you would have to voluntarily opt for the old structure to reduce your tax liability.
That said, don't let the choice of the tax structure affect your discipline with investments and insurance planning. They remain an absolute must for your long-term financial well-being and wealth creation.
Suggested read:
Budget 2023 & your money
Budget 2023 & the economy
