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16 February, 2023

Income Tax Slabs Post Budget 2023

Budget 2023 made major changes to the income tax slabs under the new tax regime but left income tax slabs and rates unchanged for the old regime. However, taxpayers are often in a dilemma on whether to opt for the old or new regime, first announced in Budget 2020.

The changes announced will come into effect for the year FY2023-24 (also referred to as AY2024-25).

Here’s how the new tax regime, which offers lower tax rates but withdraws exemptions available under the old one, looks like.

Income Tax Slabs under New Tax Regime, Rates and Deductions after Budget 2023

For those with income up to ₹ 7 lakh will be charged zero income tax under the new tax regime.

Taxpayers can choose between the old income tax regime with higher rates and the new regime with lower rates.

Income Tax Slabs Under Old Tax Regime

Key points to remember about income tax calculation.

• If taxpayers want the new regime, they will have to forgo all the important tax deductions and exemptions available under the old regime. This includes tax exemption under Section 80C, Section 80D, Leave Travel Allowance, House Rent Allowance and interest payment on home loan.

• Senior citizens above the age of 75 are exempted from filing returns. Instead, TDS is to be deducted directly by banks.

• The new tax regime has been made the default option for all taxpayers.
  
  

As a taxpayer, if you choose the new income tax regime, you will pay lower tax rates as per the tax slab you fall under. But you cannot claim any tax exemptions even if you have ongoing investments in tax-saving instruments.

However, you have the option of switching between either of the two regimes in the following year. The only condition is that you cannot alter your choice within the same financial year.

So, should you go with the new tax regime or stick to the old one?

The answer to this question depends on your annual income and how much tax are you willing to pay.

For instance, the new tax regime makes sense for those with income below ₹ 7 lakh.

But for those with higher incomes, by putting the choice in the hands of the taxpayers, the government has given us the power to decide what we want to do with our money.

This also means that each taxpayer will now have to do their calculations and figure out which tax regime is more beneficial to them. If you’ve been claiming tax deductions and exemptions under the various categories of the Income Tax Act, 1961, you might have been paying a lower amount in the form of income tax. For such individuals, the new tax regime may or may not be beneficial depending on their annual income.

Taxpayers need to understand and remember that by choosing the new tax regime and lower income tax rates, they are also choosing to forgo all the tax exemptions available to them under the old regime.

Some of the tax deductions that you will have to forgo include Section 80C investments in PF, NPS & Life Insurance Premiums, Section 80D (Medical Insurance Premium), tax deduction on HRA and interest paid on home loans.

Whether you should opt for the old tax regime or stick with the new one is an answer that you will arrive at after calculating your taxed under both regime.

However, here is an article that gives you a detailed explanation on the differences between the old and new tax regimes.

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*Terms and conditions apply. The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. You are recommended to obtain specific professional advice from before you take any/refrain from any action. Tax benefits are subject to changes in tax laws. Please contact your tax consultant for an exact calculation of your tax liabilities.