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Summary: The new tax regime differs from the old, not just in the number of tax slabs but also in tax exemptions. We examine the features of the new tax regime, and understand its differences compared to the old regime.
The 2020 Union Budget brought in a consequential change in the Indian taxation system – the new tax regime. The Government of India has provided taxpayers with the option of opting for the tax regime of their choosing. Also from AY 24-25 new regime will be default option to tax payer and they have to choose for the old tax regime. The old tax regime had four tax slabs, each catering to a different range of an individual’s income. However, this change in regime means more than just an increase in the number of tax slabs. Read on to know about the new tax regime and the ways in which it differs from the old tax regime.
We are all aware that Finance Minister Ms. Nirmala Sitharaman announced the new tax regime in the 2020 budget; thereby doing away with all the deductions and exemptions that a taxpayer could avail under the old tax regime and introducing more tax slabs. To understand the consequences of this regime for every taxpayer, we must first understand the definition of the term and its features. The new tax regime, introduced in the Budget 2020, provides taxpayers across the country with the option of paying income tax at lower rates under Section 115BAC of the Income Tax Act.
The finance minister announces the income tax slabs for the upcoming financial year in every Union Budget. Before the Budget 2020, the tax slabs of the old tax regime looked like this:
Income Tax Slab | Income Tax Rate |
Up to ₹ 2,50,000 | NIL |
₹ 2,50,001 - ₹ 5,00,000 | 5% above ₹ 2,50,000 |
₹ 5,00,001 - ₹ 10,00,000 | ₹ 12,500 + 20% above ₹ 5,00,000 |
Above ₹ 10,00,000 | ₹ 1,12,500 + 30% above ₹ 10,00,000 |
Moving on, the new tax regime adds three more tax slabs to these tax slabs, taking the total number of tax slabs in the new tax regime to 7. Here are the tax slabs for AY 2022-2023:
Income Tax Slab | Income Tax Rate |
Up to ₹ 3,00,000 | NIL |
₹ 3,00,001 - ₹ 6,00,000 | 5% above ₹ 3,00,000 |
₹ 6,00,001 - ₹ 9,00,000 | ₹ 15,000 + 10% above ₹ 6,00,000 |
₹ 9,00,001 - ₹ 12,00,000 | ₹ 45,000 + 15% above ₹ 9,00,000 |
₹ 12,00,001 - ₹ 15,00,000 | ₹ 90,000 + 20% above ₹ 12,00,000 |
Above ₹ 15,00,000 | ₹ 1,50,000 + 30% above ₹ 15,00,000 |
The table that you just saw, however, displays the new tax regime tax slabs for individuals (resident or non-resident) who are less than 60 years of age. Here is a comparison of the new tax regime tax slabs for individuals (resident or non-resident) who are more than 60 years of age, but less than 80 years of age.
Old Tax Regime | New Tax Regime | ||
Income Tax Slab | Income Tax Rate | Income Tax Slab | Income Tax Rate |
Up to ₹ 3,00,000 | NIL | Up to ₹ 3,00,000 | NIL |
₹ 3,00,001 - ₹ 5,00,000 | 5% above ₹ 3,00,000 |
₹ 3,00,001 - ₹ 6,00,000 | 5% above ₹ 3,00,000 |
₹ 5,00,001 - ₹ 10,00,000 | ₹ 10,000 + 20% above ₹ 5,00,000 | ₹ 6,00,001 - ₹ 9,00,000 | ₹ 15,000 + 10% above ₹ 6,00,000 |
Above ₹ 10,00,000 | ₹ 1,10,000 + 30% above ₹ 10,00,000 | ₹ 9,00,001 - ₹ 12,00,000 | ₹ 45,000 + 15% above ₹ 9,00,000 |
₹ 12,00,001 - ₹ 15,00,000 | ₹ 90,000 + 20% above ₹ 12,00,000 | ||
Above ₹ 15,00,000 | ₹ 1,50,000 + 30% above ₹ 15,00,000 |
The new tax regime is applicable on income earned from 1st April 2020 (FY 2020-2021) which relates to AY 2021-2022.
As mentioned earlier, the new tax regime’s implementations have farther-reaching effects and implications. Here are the deductions or exemptions for which you shall not be eligible under the new tax regime:
The following allowances can be claimed under the new tax regime:
Your choice of tax regime would depend on various aspects related to your personal finances. Some of the considerations that you must make are – whether you have a housing loan, whether you contribute towards EPF (Employee Provident Fund), whether you receive HRA (House Rent Allowance) benefits, and so on.
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