The Union Budget 2023-24 has a left many confused about which tax regime is preferable.
Finance Minister has proposed to make the new tax regime more attractive by increasing the rebate limit from Rs 5 lakh to Rs 7 lakh and easing the tax slabs.
Old tax regime
For those who wish to claim the benefits of house rent allowance, house loan interest, medical insurance premium, education loan interest, charitable donations and the exemptions under Section 80 C such as Life Insurance premium, school and college fees for kids, repayment of principal amount in house loan, Provident Fund, National Savings Scheme and National Pension Scheme, the old tax regime is more suitable.
The calculations in the following chart are for an individual with an income of Rs 18 lakh seeking exemptions.
New tax regime
Raising the rebate limit to Rs 7 lakh is expected to incentivise people to shift to the new tax regime and reduce their tax burden. Furthermore, a standard deduction of Rs 50,000 has been introduced in the new tax regime for salaried and pensioners.
The new tax regime is a simpler alternative, without claiming any investment-related deductions or exemptions, and is expected to be useful for individuals who are not in a position to invest and claim deductions.
Now, under the new tax regime, anyone with an income of up to 7 lakh can claim a rebate and is not liable to pay income tax.
The calculations in the following chart are for an individual with an income of Rs 18 lakh who is not seeking exemptions.
In the new tax regime, the highest surcharge levied under personal income tax has been reduced from 37 per cent to 25 per cent. This would reduce the maximum tax rate on the highest income slab with income above Rs 2 crore from 42.74 per cent to 39 per cent.
Overall, the budget proposals in the Union budget are expected to benefit taxpayers by reducing their tax burden. The new tax regime becomes the default regime, however, individuals have the option to continue with the old regime.
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