After the announcement of the Union Budget 2023-24 by the Finance Minister Nirmala Sitaraman there is quiet a big debate amongst the citizens as to which scheme of taxation would be more beneficial to them in terms of reduced taxes and what are the pros and cons of the new tax regime.  

What is the new regime of taxation?

The new regime was introduced during the financial year 2020-21 by Finance Minister Nirmala Sitaraman and the aim of that budget was to reduce the likelihood of saving incentives and place more money in the hands of the taxpayer.

Under this regime, the taxpayer is not eligible for any exemption such as standard deduction, professional tax, entertainment allowance, house rent allowance etc., and also not eligible to claim any deduction such as Chapter VI – A deductions which covers contributions towards PPF, Life Insurance, Mediclaim Insurance, NPS etc.,

Major Amendments in New Regime introduced in Budget 2023

Now, the above rates have been changed in the Finance budget 2023-24 to the following rates,

Income Slab (Rs.)	Rate of Tax (%)
NIL to 3,00,000	0%
3,00,000 – 6,00,000	5%
6,00,000 – 9,00,000	10%
9,00,000 – 12,00,000	15%
12,00,000 – 15,00,000	20%
Above 15,00,000	30%

The rebate has been extended till a total income of Rs. 7Lakhs in the new regime, i.e., a taxpayer need not pay any tax if his total income for a financial year is 7 lakhs or below., I.e., upto a monthly salary of Rs. 58,333/-Also, in the budget 2023, it has been proposed to allow standard deduction of Rs. 50,000 for all the salaried      persons.

Points to be kept in mind before choosing New Tax regime or Old tax Regime:-

1. As your income increases to a higher slab, the benefit of new scheme will be widened.

• If you have made donations or claiming other deductions such as interest on education loan, deduction in respect of medical treatment for self/ dependent, deduction for housing loan etc., then the test between old and new regime as to which is beneficial to you must be made on case-to-case basis.

• 3.  The investment of Rs. 2,25,000 is an outflow for every year in the old regime.

• The new regime gives zero tax benefit without any investment till an annual salary of Rs. 7 lakhs, i.e., Rs. 58,333/- per month.

Another important point in this aspect is to consider as to whether an outflow of Rs. 2,25,000 is feasible to be spent by an individual with an annual salary of 7,00,000? That would amount to almost 30% of his salary, and hence the Government’s measure to bring zero tax up to an annual salary of Rs. 7 lakhs in the new regime is  very welcoming.

Conclusion

The main take aways from these discussions are:

1. Taxpayers having salary in the range of 5 lakhs to 7 lakhs can opt for the new regime.

• Taxpayers who have availed the facility of housing loan can opt old regime.

• The benefit of the new regime widens as the income increases.

• Do not consider the tax savings alone, also have a view about the interest lost by investing all the savings in a low ROI Investment.

• Choose your investment pattern based on your financial goals and risk appetite.

• Do not invest all your savings in one bucket, diversification gives you portfolio the stable return.