In budget 2022, Finance Minister of India introduced new tax regime for direct taxes. The new tax regime was further modified in budget 2023 to make it more attractive. The modified new tax regime will be applicable for April 1, 2023.
Since new tax regime has removed various exemptions many tax payers finding it uncomfortable. Therefore, staying away from the new tax regime. Furthermore, Government has not withdrawn the old tax regime and given an option to choose one. In this context, it is important to understand the new tax regime and its benefits.
Income slabs as per new tax regime
The government don’t levy tax on the entire income of an individual. There are certain portion which are excluded for tax calculation. On the balance portion, higher tax rates are levied as the income rises. This approach is known as progressive taxation. Accordingly, Income Tax Department has created ‘income slabs’ for the purpose of tax calculation. The income slabs and applicable income tax rate as per old and new tax regime are as below.
| Tax rate as per old tax regime | Tax rate as per new tax regime | ||||
| Slab (₹ in lakh) | Resident individuals & HUF < 60 years age & NRI | Resident individuals & HUF > 60 years age | Resident individuals & HUF > 80 years age | As per budget 2022 | As per budget 2023 |
| ₹0-2.5 | Nil | Nil | Nil | Nil | Nil |
| ₹2.5-3.0 | 5% | NIL | NIL | 5% | NIL |
| ₹3.0-5.0 | 5% | 5% # | NIL | 5% | 5% |
| ₹5.0-6.0 | 20% | 20% | 20% | 10% | 5% |
| ₹6.0-7.5 | 20% | 20% | 20% | 10% | 10% |
| ₹7.5-9.0 | 20% | 20% | 20% | 15% | 10% |
| ₹9.0-10.0 | 20% | 20% | 20% | 15% | 15% |
| ₹10.0-12.0 | 30% | 30% | 30% | 20% | 15% |
| ₹12.0-12.5 | 30% | 30% | 30% | 20% | 20% |
| ₹12.5-15.0 | 30% | 30% | 30% | 25% | 20% |
| >₹15.0 | 30% | 30% | 30% | 30% | 30% |
# tax rebate u/s 87A is available, if taxable income is less than ₹5 lakh.
As we see from above, under new tax regime the tax rates are less as compared to old tax regime for different income slabs.
In a simple way income slab and tax rate as per new tax regime (Applicable from April 1, 2023) is as below.
| Slab (₹ in lakh) | Tax rate |
| ₹0-3.0 | NIL |
| ₹3.0-6.0 | 5% |
| ₹6.0-9.0 | 10% |
| ₹9.0-12.0 | 15% |
| ₹12.0-15.0 | 20% |
| >₹15.0 | 30% |
Exemption under new tax regimes
In old tax regime, there were many exemptions allowed from income to arrive at taxable income. However, in new tax regime, they have been removed drastically keeping a few exemptions. The effort is to simplify the tax calculation and payment.
The available exemptions as per old tax regime and new tax regime are as given below:
| Particulars | Old tax regime | As per Budget 2022 | As per Budget 2023 (April 1, 2023) |
| Income level for rebate eligibility | ₹ 5 lakhs | ₹ 5 lakhs | ₹ 7 lakhs |
| Standard Deduction | ₹ 50,000 | – | ₹ 50,000 |
| Effective Tax-Free Salary income | ₹ 5.5 lakhs | ₹ 5 lakhs | ₹ 7.5 lakhs |
| Rebate u/s 87A (if income is less than ₹5 lakh) | 12,500 | 12,500 | 25,000 |
| HRA Exemption | ✓ | X | X |
| Leave Travel Allowance (LTA) | ✓ | X | X |
| Other allowances including food allowance of Rs 50/meal subject to 2 meals a day | ✓ | X | X |
| Entertainment Allowance Deduction and Professional Tax | ✓ | X | X |
| Perquisites for official purposes | ✓ | ✓ | ✓ |
| Interest on Home Loan u/s 24b on self-occupied or vacant property | ✓ | X | X |
| Interest on Home Loan u/s 24b on let-out property | ✓ | ✓ | ✓ |
| Deduction u/s 80C (EPF/LI/ELSS/PPF/FD/Children’s tuition fee etc) | ✓ | X | X |
| Employee’s (own) contribution to NPS | ✓ | X | X |
| Employer’s contribution to NPS | ✓ | ✓ | ✓ |
| Medical insurance premium – 80D | ✓ | X | X |
| Disabled Individual – 80U | ✓ | X | X |
| Interest on education loan – 80E | ✓ | X | X |
| Interest on Electric vehicle loan – 80EEB | ✓ | X | X |
| Donation to Political party/trust etc – 80G | ✓ | X | X |
| Savings Bank Interest u/s 80TTA and 80TTB | ✓ | X | X |
| Other Chapter VI-A deductions | ✓ | X | X |
| All contributions to Agniveer Corpus Fund – 80CCH | ✓ | NA | ✓ |
| Deduction on Family Pension Income | ✓ | ✓ | ✓ |
| Gifts upto Rs 5,000 | ✓ | ✓ | ✓ |
| Exemption on voluntary retirement 10(10C) | ✓ | ✓ | ✓ |
| Exemption on gratuity u/s 10(10) | ✓ | ✓ | ✓ |
| Exemption on Leave encashment u/s 10(10AA) | ✓ | ✓ | ✓ |
| Daily Allowance | ✓ | ✓ | ✓ |
| Transport Allowance for a specially-abled person | ✓ | ✓ | ✓ |
| Conveyance Allowance | ✓ | ✓ | ✓ |
Tax calculation under new tax regime
Let us understand tax calculation based on old tax regime and new tax regime with an example.
Mr. X is a salaried individual below the age 60 years with an annual income of ₹12 lakh after deducting the allowances and perquisite amounting to ₹1.5 lakh. Mr. X has availed tax deduction under section 80C, 80D and 24b. The tax liability of Mr.X as per old tax regime is as below:
| Particulars | Old Tax regime |
| Gross Income | 12,00,000 |
| Deductions: | |
| Standard deduction | 50,000 |
| U/s 80 C | 1,50,000 |
| U/s 80D | 25,000 |
| U/s 24b | 75,000 |
| Taxable income | 9,00,000 |
| Tax as per income slab | |
| 0 to 2.5 Lakh | 0 |
| 2.5 to 5 Lakh @ 5% | 12,500 |
| 5 Lakh to 10 Lakh @ 20% | 80,000 |
| > 10 Lakh @ 30% | 0 |
| Tax liability | 92,500 |
| Cess @4% | 3,700 |
| Total tax outgo | 96,200 |
The tax liability of Mr.X as per new tax regime is as below:
| Particulars | New Tax regime |
| Income | 12,00,000 |
| Add : perquisite and allowances | 1,50,000 |
| Gross Income | 13,50,000 |
| Deductions: | |
| Standard deduction | 50,000 |
| U/s 80 C | NA |
| U/s 80D | NA |
| U/s 24b | NA |
| Taxable income | 13,00,000 |
| Tax as per income slab | |
| 0 to 3.0 Lakh | 0 |
| 3.0 to 6 Lakh @ 5% | 15,000 |
| 6 Lakh to 9 Lakh @ 10% | 30,000 |
| 9 to 12 Lakh @ 15% | 45,000 |
| 12 to 15 lakh @ 20% | 20,000 |
| Tax liability | 1,10,000 |
| Cess @4% | 4,400 |
| Total tax outgo | 1,14,400 |
It can be observed from above that tax liability is marginally high in case of new tax regime.
Conclusion
The new tax regime has simplified tax calculation and payment. The tax rates are also reasonable. The good news is the Government has not abolished the old tax regime. The tax payer can choose the appropriate regime at the beginning of the financial year. The same can also be modified at the time of return filing.
It is understood from the above example, the old tax regime is more suitable for high income category, provided they have investments and avenues for income deduction for tax purpose. The new tax regime is suitable for low and middle income category. It would be more appropriate to choose the right regime as per one’s financial plan.
Apart from cess, surcharge are also applicable on income tax based on income level as below:
- 10% if total income exceeds ₹50 lakh
- 15% if total income exceeds ₹ 1 crore
- 25% if total income exceeds ₹ 2 crore
The new tax regime is also applicable for entities under then individuals
Tax rate for Companies
| Particulars | Tax rate |
| Companies opt for section 115BAB (not covered in section 115BA and 115BAA) & is registered on or after October 1, 2019 and has commenced manufacturing on or before 31st March, 2023 | 15% |
| Company opt for Section 115BAA, wherein the total income of a company has been calculated without claiming specified deductions, incentives, exemptions and additional depreciation | 22% |
| Company opts for section 115BA registered on or after March 1, 2016 and engaged in manufacture of any article or thing and does not claim deduction as specified in the section clause. | 25% |
| Turnover or gross receipt of the company is less than Rs. 400 crore in the previous year 2018-19 | 25% |
| Any other domestic company | 30% |
The companies are also subject to cess payment @ 4% and surcharge on income tax as below:
- 7% where total income is more than ₹ 1 crore
- 12% where total income is more than ₹10 core
- 10% for companies opting section 115BAA and 115 BAB
Rate for partnership firm or LLP
The applicable tax rate for is taxable @ 30%. The cess is levied @4% and surcharge @12% if income exceeds ₹ 1 crore.
It may also be noted that the tax rates in the New tax regime is the same for all categories of Individuals, i.e Individuals & HUF upto 60 years of age, Senior citizens above 60 years upto 80 years and Super senior citizens above 80 years. Hence no increased basic exemption limit benefit will be available to senior and super senior citizens in the New Tax regime.
Individuals with net taxable income less than or equal to Rs 5 lakh will be eligible for tax rebate u/s 87A i.e tax liability will be nil of such individual in both – New and old/existing tax regimes.
Basic exemption limit for NRIs is of Rs 2.5 Lakh irrespective of age.
Additional Health and Education cess at the rate of 4 % will be added to the income tax liability in all cases.
Surcharge applicable as per tax rates below in all categories mentioned above:
- 10% of Income tax if total income > Rs.50 lakh
- 15% of Income tax if total income > Rs.1 crore
- 25% of Income tax if total income > Rs.2 crore
This write up is for general understanding of old tax regime vs new tax regime. For in depth understanding contact your tax expert or write in comment.