Everyone knows the importance of taxes, as they play a crucial role in finance management. But the tax regimes are always changing, and it is hard to keep track of what’s happening in that subject. Recently, a lot of noise has been happening around the new tax regime and which one to choose, the old one or the new one. Worry not; we will cover all that in this post. Let’s start with the Tax regime before we move on to understanding our current and old tax regimes, the differences between them, and what that means to us.
What is a Tax Regime?
It might be a simple phrase, and many of you are already aware of it. But for the ones who are just getting started with their taxes, you must understand that a tax regime is a set of rules and regulations put up by the government to govern the management of taxes in a particular jurisdiction. Tax regimes tend to vary depending on the kinds of taxes covered, tax bases covered, exemptions from tax allowed, and the calculation technique employed for a specific taxpayer.
Before we dive into the new tax regime slabs, let us talk about the old tax regime slabs.
What is The Old Tax Regime Slab?
You can find everything you need to know about our old tax regime right here. Exemptions and deductions, which include HRA and LTA, are obtainable under the old tax regime slab, which can lessen your taxable income and keep down your tax payments. In other words, the old tax regime tends to adhere to an ongoing tax structure with numerous exemptions and deductions, offering higher income leading to higher tax rates.
Refer to the table given below to understand the features of the old tax regime slab:
| Old Regime Tax Slabs: | Income Range: Up to Rs. 2.5 lakhs – 0%Income Range: Up to Rs. 2.5 lakhs to 3 lakhs- 5%Income Range: Up to Rs. 3 lakhs to Rs. 5 lakhs – 5%Income Range: Up to Rs. 5 lakhs to Rs. 10 lakhs – 20%Income Range: More than Rs. 10 lakhs – 30% |
| Similar Exemptions and Deductions Under the Income Tax: | The most similar exemptions and deductions are in the sections of 80C, 80D, 80TTB, House Rent liability, Leave Travel liability, etc. |
| High Tax Deduction and Exemptions: | There are about 120 deductions in the old tax regime to lessen tax accountability, for example, 80C, HRA, etc. |
| 4 LTCG Benefits: | In the old tax regime, you would be eligible for long-term capital gains tax savings when producing investments, particularly in debt funds. |
What is the New Tax Regime Slab?
As you already know the role and key features of the old tax regime slab, you must also be curious about the new tax regime slab. The new tax regime is a system of income tax in India that was first put up in the Union Budget for 2020-2021.
Eventually, the tax regimes were not consistent, whereas the budget for the years 2021-2022 did not perceive statements in this regime. Throughout the budget 2022-2023, announcements were made that The New Tax Regime was receiving a lack of response, and the government aimed to make it more pleasing to the taxpayers. The latest changes introduced in the Union Budget 2023-2024 was the modified tax system of the already existing tax system of 2022-2023.
Here are a few points of the new tax regime that are considered advantageous to the taxpayers:
| New Tax Slab | Income Range: Up to Rs. 3 lakhs – 0%Income Range: Up to Rs. 3 lakhs to 6 lakhs- 5%Income Range: Up to Rs. 6 lakhs to Rs. 9 lakhs – 10%Income Range: Up to Rs. 9 lakhs to Rs. 12 lakhs – 15%Income Range: Up to Rs. 12 lakhs to Rs. 15 lakhs – 20%Income Range: More than Rs. 15 lakhs – 30% |
| 2. Simpler Tax System | The new tax regime makes the tax system more comprehensible by offering lower tax rates modified for each income category. |
| 3. Lower Tax Rates | Taxpayers can benefit from lower tax rates in the new regime, which leads to reduced tax responsibility and increased discretionary income. |
| 4. Changes in the Surcharge Rate | Executing the new tax regime results in scaling down the surcharge rate from 37% % to 25%. This reduced surcharge rate is justifiable for taxpayers who choose the new tax regime and have an income exceeding five crore. |
| 5. No Tax Deduction | The new tax regime dissolves the necessity to trace and claim deductions, saving taxpayers effort and time. |
| 6. Exemption on Leave Encashment | You can acquire an exemption on leave encashment in the new tax regime. |
The 3 Key Differences Between Old Regime Tax and New Regime Tax
When you are going through the pages to find out what has changed in taxes, you need to know both the old and new tax systems. Taxpayers should examine their income sources, expenditures, and potential deductions to decide which tax regime to follow.
The three main differences between the old and new tax regime slab are mentioned in the table below:
| Old Tax Regime | New Tax Regime |
| Income to be taxed started from 2.5 lakhs. | Income to be taxed starts at Rs. 3 lakhs. |
| The old tax regime had over 120 deductions and concessions. | 2. The new tax structure tends to be advantageous to those employees who earn less and invest less, which leads to fewer deductions and exceptions. Therefore, the new tax structure will be safer and more beneficial. |
| The old tax regime contained a lower tax home salary since the taxpayers had to invest in long-term investments to aid the advantages. | 3. The new tax regime allows the taxpayer to increase the take-home salary, which is not expected to be invested upfront. |
Conclusion
The new tax regime presents lower tax rates compared to the old one. However, taxpayers will not be able to claim certain deductions and exemptions in the new tax regime, as they could in the old one. Since you now know both regimes, you will be able to make informed decisions. The bottom line is that keeping yourself updated with the new regime is more than essential.