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How to choose between both the tax regimes for salaried taxpayers?
From a tax planning perspective, choosing the tax regime at the beginning of the financial year is essential.
An individual with an income bracket between Rs.7.5 lakh to 15 lakh with lower deductions claims for tax savings towards health insurance, investment in NPS and so on, will benefit from the new regime against individuals who utilise the tax-saving investments.
As per the Budget proposal for 2023, standard deduction of Rs.50,000 is now allowed for salaried persons from FY 2023-24 (AY 2024-25) onwards.
Let’s understand the tax outflow with the help of an example (FY 2023-24)
| Particulars | Amount (Rs.) | Old regime (Rs.) | New regime (Rs.) |
|---|---|---|---|
| Salary | 12,50,000 | 12,50,000 | 12,50,000 |
| Less: Standard deduction | 50,000 | 50,000 | 50,000 |
| Gross total income | 12,00,000 | 12,00,000 | 12,00,000 |
| Less: Deduction u/s 80C | 1,50,000 | 1,50,000 | - |
| Total Income | 10,50,000 | 10,50,000 | 12,00,000 |
| Income tax | - | 127,500 | 90,000 |
| Add: Education cess @ 4% | - | 5,100 | 3,600 |
| Total tax | - | 132,600 | 93,600 |
In the above example, for an income of Rs.12,50,000, the new tax regime is significantly beneficial by Rs.39,000. However, if you claim further deductions for interest on housing loan, health insurance, investment in NPS, education loans and so on, the old regime will be helpful in respect of tax savings.