The finance minister has proposed new income slabs that will reduce the middle-income earner group’s overall tax burden in FY 2023–2024. The highest rate surcharge has been decreased by the government from 37% to 25% under the new tax system. These tax slabs under the new tax regime has been revised from April 1, 2023. Additionally, the new income tax system is adopted as the default tax system. Individuals will, however, have the choice to stick with the previous income tax system.
The amended income tax rates under the new tax law for the financial year 2023–24 (AY 2024-25)
| Income Tax slabs under new tax regime | Income Tax rates under new tax regime |
| 0 to 3 Lakh | 0 |
| Rs 3 Lakh to Rs 6 Lakh | 5% |
| Rs 6 Lakh to Rs 9 Lakh | 10% |
| Rs 9 Lakh to Rs 12 Lakh | 15% |
| Rs 12 Lakh to Rs 15 Lakh | 20% |
| Above Rs 15 Lakh | 30% |
| The changes announced for FY24 make the new tax regime a compelling option for two sets of people. It is an obvious choice for those with income below ₹ 7 lakh (or ₹ 7.5 lakh for those with salary income as they avail an additional ₹ 50,000 as Standard Deduction). However, opting for old tax regime allows you to claim a long list of exemptions, some of which are listed below: Exemption of income up to ₹ 1.5 lakh under Section 80C of the Income Tax Act. This allows in pension funds ,EPF, PPF, selected mutual funds (ELSS), ULIPs, tax saving fixed deposits or other saving schemes such as National Savings Certificate, Sukanya Samriddhi Yojana, Senior Citizens Savings Scheme etc. Spending on life insurance, principal repayment made towards home loan or tuition fee for child can also be considered for exemption under Section 80C. An additional ₹ 50,000 invested in NPS can be claimed from taxable income under Section 80CCD. Other tax benefits such as spending on health insurance for self and parents can be claimed as an exemption under Section 80D. Other benefits include leave Travel Allowance, House rent allowance depending upon salary structure and rent paid, besides a host of other exemptions can also be claimed in the old tax regime. |
Comparative analysis of alternate tax with regular tax rates
| Income | Tax liability as per old structure | Tax liability as per new structure | Tax savings under new option |
| Up to 5 Lakh | – | – | – |
| Rs 7 lakh | 54600 | Up to 7 Lakh (Nil) | 54600 |
| Rs 8 lakh | 75400 | 36400 | 39000 |
| Rs 9 lakh | 96200 | 46800 | 49400 |
| Rs 10 lakh | 117000 | 62400 | 54600 |
| Rs 12 lakh | 179400 | 93600 | 85800 |
| Rs 15 lakh | 273000 | 156000 | 117000 |
New tax regime: Pros and Cons
The Pros:
- The new tax regime makes sense for this with income up to ₹ 7 lakh, or for those with higher incomes who cannot claim tax benefits of at least ₹ 4.5 lakh.
- Tax calculation under new tax regime is simpler.
- Operating under the new tax regime makes life simpler for the taxpayer as they do not have to worry about keeping records of their exemption claims.
The Cons:
- Those who claim high amount of exemptions are better off in old tax regime.
- New tax regime makes no effort to incentivise taxpayers to save, such as in ELSS or PPF schemes.