The Union Budget 2023 has revamped the new tax regime for individual taxpayers with reduced slab rates, availability of certain specified deduction such as standard deduction of Rs 50,000, enhanced threshold exemption of Rs 7 lakhs, reduced surcharge rate from 42.74 per cent to 39 per cent for total income exceeding Rs 5 crores etc.
The new tax regime provides for concessional tax rates (subject to certain restrictions on claiming tax deductions and exemptions) vis-à-vis tax rates in the old regime. The existing tax regime provides for a deduction to the taxpayers provided they make investments in certain instruments and manner as prescribed in the Income Tax Act, 1961 (hereinafter referred to as ‘the IT Act’). On the other hand, the revamped new tax regime extends certain benefits as to the taxpayers vis-à-vis the old tax regime, as listed below:
- Limit of rebate under new tax regime increased from Rs 5 lakhs to Rs 7 lakhs
- Number of tax slabs reduced from 6 to 5
- Basic income exemption limit increased from Rs. 250,000 to Rs. 300,000
- Tax slab of 25 per cent proposed to be removed
- Surcharge capped at 25 per cent (earlier 37 per cent surcharge was the highest rate), resulting in reduction of the highest marginal tax rate from 42.744 per cent to 39 per cent
Accordingly, the individual taxpayer would now be able to choose and make a fair comparative assessment between the old as well as the revamped new tax regime. It may happen that an individual who is claiming deduction of Interest on Housing loan and other deductions such as section 80C (Life insurance premium, ELSS, 5 yrs FD, principal on housing loan, EPF, PPF, etc), 80D (Mediclaim) may still prefer continuing with the old regime.
Whereas, an individual who does not have a housing loan and is not claiming deduction of interest on housing loan, may find the new revamped tax regime more beneficial.
For reference purposes and easy understanding, we have provided 2 alternative scenarios (under the Old Regime and New Proposed Revamped Regime to illustrate this:
(Old regime vs new regime (without housing loan)
Old regime vs new regime (with housing loan)
In light of the above and considering the new revamped personal tax regime, the taxpayers may evaluate both the regimes based on their specific case, investment appetite, risk perspective, financial liquidity and more.
It is pertinent to note that the Budget 2023 has also proposed to make the new tax regime as the default tax regime. However, in case the individual taxpayers intends to opt for the old tax regime, they may opt for the same by way of following the prescribed procedure (which is yet to be notified). Earlier, the taxpayers intending to opt for the new tax regime were required to file Form 10E on or before the due date of furnishing tax returns. Thus, a similar procedure of filing form for opting for old tax regime may be prescribed.
Further, the proposed changes to the new tax regime provide the individual taxpayers with an opportunity to opt between the old and the new tax regime on a year-on-year basis. However, any taxpayer deriving income from business or profession who has exercised the option of shifting out of the new tax regime shall be able to exercise the option of opting back to the new tax regime only once.
The author is founder, RSM India
