Budget 2023: Tax saving under new tax regime vs old tax regime for Rs 7.5 lakh, 10 lakh and Rs 5.1 crore income

The budget 2023 announcement by the honourable Finance Minister has proposed changes to the personal income tax under the new regime with the focus of providing relief to middle-class section of the society.

The first change is made to the slab rate where in the tax brackets are now calculated in slabs of INR 3,00,000 as against the erstwhile INR 2,50,000.

Further, the benefit of standard deduction of INR 50,000 is proposed to be extended to the new tax regime for individual earning income from salary. Further, rebate under section 87A has been increased from INR 12,500 to INR 25,000 only under the new tax regime. For individuals whose aggregate income exceeds INR 5 crore, the applicable surcharge is reduced from 37% to 25% under the new tax regime.

However, it is pertinent to keep in mind that the restriction imposed on the taxpayer to qualify for the new tax regime continues and there is no relief on this account.

Let us analyse the tax savings under various scenarios, with the help of an illustration:

Illustration 1: Gross income from salary is INR 7,50,000

As can be seen from the above, taxpayers with gross income of INR 7,50,000 where they would have to pay a tax of INR 39,000 under the erstwhile new regime, under the proposed tax regime, not only have the income tax reduced due to the changes in the slab rate, the whole income tax is now exempt due to the rebate under section 87A.

Illustration 2: Gross Income from salary is INR 10,00,000

In this illustration, we have examined a situation where the assessee is entitled to tax deductions on account of housing loan and other eligible investments. In such a case, income tax payable under the old regime is significantly lower than that under erst while new regime and the proposed new regime.

Illustration 3: Gross Income from salary is INR 5.1 crore

In this illustration, assuming the tax payer is eligible for similar deduction as illustration 2 but his income is more than INR 5.1 crore, there is a break even in the income tax between the old regime and new regime. However, new tax regime become more beneficial due to the reduction in surcharge.

The Finance Minister in her speech mentioned that the new tax regime will now be the default tax regime. Therefore, it is imperative, that taxpayers should compare their tax liability between the old regime and new regime, based on the deductions available and determine (or select in the ITR) which regime would they prefer to be tax under. In case of individuals with income (other than business & profession) this option can be exercised every year.  

(With Inputs from Neetu Brahma)