Old vs new tax regime – How much tax you need to pay on your income
Financial Year 2022-23 is about to end. Still many are in confusion Old vs new tax regime: which one is better? What are the benefits and drawbacks of the old tax regime vs the new tax regime? What are the key differences between the old and new tax regime ? Is it worth switching to the new tax regime? Pros and cons? which tax regime is better for 10 Lakh, 20 lakhs, 30 lakhs of Income? This article will solve your all confusion
Old vs new tax regime slab rate for FY 2022-23
|Old Tax Regime Slabs||Rate(%)||New Tax Regime Slabs||Rate(%)|
|Up to 250000||0%||Up to 250000||0%|
In both the schemes, Income Tax calculated will be subject to cess @ 4% and surcharge as follows-
|Net Income||Surcharge Rate|
|Exceeds Rs. 50 Lakh but upto Rs. 1 Crore||10%|
|Exceeds Rs. 1 Crore but upto Rs. 2 Crore||15%|
|Exceeds Rs. 2 Crore but upto Rs. 5 Crore||25%|
|Exceeds Rs. 5 Crore||37%|
Read Also: 8 changes in new ITR forms for AY 2023-24, you must know
Which regime is better when you have no Tax saving or investment?
Which regime is better when you have tax saving investment?
What are the benefits and drawbacks of the old tax regime?
- Under this regime, various tax exemptions or deductions are available where amount is invested in notified schemes. Investment servings as a source of passive income that helps in beating inflation through investment.
- Since all the investment under old tax regime has lock-in period of investment, it hits liquidity.
- Evidence retention of deductions claimed is a hassle.
- It is not advantageous for taxpayers with nil or lower transactions eligible for tax deductions
Read Also: Save Tax: 10 Income Tax planning Tips for FY 2022-23
What are the benefits and drawbacks of the new tax regime?
- The new income tax rate is beneficial for people with low investments in policy schemes.
- Anyone paying taxes without claiming exemptions under the existing system can benefit from paying a lower upfront rate of tax.
- It’s an optional scheme so people have the flexibility to switch over from one system to after evaluation for the previous year is complete. However, a taxpayer can only switch from the old system to the new one if he/she has no income from a business or businesses.
- The new tax regime introduces lower tax rates in lieu of exemptions. It is good for people with low investments, but people who already invest a fair amount in tax-free savings schemes like PPF, NPS and claim deductions on them will suffer. No planning possible under this regime
Read Also: Which tax regime is better old or new? Check examples income wise
What are the key differences between the old and new tax regime ?
1. In light of the above examples and considering the new personal tax regime wherein certain deductions and exemptions would not be available, the taxpayers may evaluate both the regimes.
2. Any taxpayer, who is looking for flexibility in the investment choices and does not want to invest in the specified eligible instruments, may consider opting for the new tax regime.
3. It is notable that the choice can be changed every year and any regime which is beneficial can be adopted by the individual.
4. Individuals who have income from business or profession cannot switch between the new and old tax regimes every year. If they opt for the new taxation regime, such individuals get only one chance in their lifetime to go back to the old regime. Further, once switched back to existing tax regime, they will not be able opt for new tax regime unless their business income ceases to exist.
5. In New Income tax regime, slab rate for non- senior citizens Individual, Senior citizen as well as Very Senior citizens are same.
6. It is important to note that the income tax department has brought out a tax comparison utility, which is available on their web portal and in which, an individual taxpayer can evaluate which option is better for them. The link to which is as under: https://www.incometaxindia efiling.gov.in/Tax_Calculator/
Read Also: Income Tax: Which Salary Components are Taxable?
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