May 29, 2024

Old vs New Tax Regime: How will Budget 2023 benefit taxpayers under both regimes?

While the FM has proposed some changes to enhance the appeal of the new tax regime, the hopes of taxpayers opting for the old tax regime were belied as the Budget 2023 failed to do anything for them.

Old vs New Income Tax Regime: Hit hard by the high inflation and the rising cost of living, there were expectations galore from the Union Budget 2023. Taxpayers and the common man were looking towards Finance Minister Nirmala Sitharaman with much hope as they expected her to do something for them, particularly for reducing their tax burden.

Increase in the section 80C deduction limit from Rs 1.5 lakh to at least Rs 2 lakh, increase in the basic income tax exemption limit to Rs 5 lakh, more tax sops for homebuyers and investors etc were among the key expectations of taxpayers. Taxpayers were also expecting some changes in the New Tax Regime to make it more attractive.

However, while the FM in her budget speech proposed some changes to enhance the appeal of the new tax regime, the hopes of taxpayers opting for the old tax regime were belied as the Budget 2023 failed to do anything for them.

For instance, the number of tax slabs in the new tax regime has been proposed to be reduced from 6 to 5, while the tax exemption limit has been increased to Rs 3 lakh. The rebate limit in the new tax regime has also been increased to Rs 7 lakh from Rs 5 lakh earlier, and the benefit of standard deduction has been extended to it.

However, no tax sops have been announced for the taxpayers under the old tax regime. This means no increase in the 80C deduction limit, no increase in the basic exemption limit, and almost no tax sops for homebuyers and investors. This has left the taxpayers under the old tax regime highly disappointed as there is no incentive for them to save or spend more, nor their tax burden has reduced at all.

Why this?

Tax experts say the government is actively promoting the new tax regime, which will now be the default tax regime. The basic exemption under this regime has increased to Rs 3 lakh from Rs 2.5 lakh.

“Individual taxpayers earning up to Rs 7 lakh will not have to pay taxes as compared to the current limit of Rs 5 lakh. Tax rates have been reduced under the new tax regime and the maximum marginal rate drops from 42.74% to 39%. Further, benefit of standard deduction is also extended under the new tax regime which was not available earlier,” said Saraswathi Kasturirangan, Partner, Deloitte India.

Adhil Shetty, Chief Executive Officer (CEO) and Co-founder of Bankbazaar.com, and Co-Chair of the FICCI Fintech Committee, said, “Taxpayers with income up to Rs 7 lakh will not have to pay any income tax under the new regime as the rebate under section 87A has been increased from Rs 5 lakh to Rs 7 lakh in the Budget 2023. The salaried and pensioners will now be eligible for a deduction of Rs 52,500 under the new tax regime. The standard deduction is Rs 50,000 in the old regime, and the maximum deduction for professional tax is Rs 2,500. Those earning above Rs 15 lakh will be taxed at 30% in both regimes.”

“In the new regime, due to the enhanced tax brackets, the taxes for anyone earning more than Rs 15 lakh will marginally reduce, whereas nothing changes in the old regime. The government has proposed to reduce the highest surcharge rate from 37 per cent to 25 per cent in the new tax regime. It would mean lower taxes for anyone earning more than Rs 5 crore,” Shetty added.

Divya Baweja, Partner, Deloitte India, said the FM has proposed various changes in the New tax regime to make it more popular. Out of 5 major announcements made under personal tax, three proposals have been made for middle class salaried individuals opting for new tax regime which are – Increase in the rebate under Section 87A for people earning taxable income up to Rs 7 lakh, change in tax slab rates and introduction of standard deduction and deduction against family pension, making the new tax regime all the more lucrative.

“While no changes have been proposed under the old tax regime, the only relief available is increase in the exemption limit for leave encashment from Rs 3 lakh to Rs 25 lakh. This long-awaited relief should bring the smile on the faces of individuals irrespective of the tax regime being chosen by them,” he added

 

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