Standard Deduction Extended to New Tax Regime
Earlier, you could avail of a standard deduction of ₹50,000 only under the old tax regime. Now, this deduction applies to the new tax regime as well. This also includes the deduction from family pension up to ₹15,000.
Savings Under the New Regime with New Tax Slabs
Below are some tax calculations to help you put things into perspective based on various amounts of annual income.
Annual Income of ₹7 Lakhs
Say you earn ₹7 Lakhs a year. Here’s what your taxes will look like based on the two regimes.
Owing to the enhancement in the rebate limit, you pay ₹0 as taxes if you file taxes under the new tax regime for FY 23–24 or AY 24–25.
Taxable Income |
Taxed At |
Tax Payable |
₹0–2.5 Lakhs |
0% |
₹0 |
₹2,50,001–5 Lakhs |
5% |
₹12,500 |
₹5,00,001–7 Lakhs |
10% |
₹20,000 |
|
Total |
₹32,500 |
|
+4% cess |
₹33,800 |
Your total savings are therefore ₹33,800 – ₹0 = ₹33,800. This enables you to invest for your future or increase your purchasing power in the present.
Annual Income of ₹10 Lakhs
Say you earn ₹10 Lakhs a year. Here’s what your taxes will amount to as per the two tax regimes.
First, consider the standard deduction of ₹50,000.
With this, your taxable income amounts to ₹9,50,000.
This is how you would be taxed under the new slabs of the new regime as per the Budget 2023 announcement.
Taxable Income |
Taxed At |
Tax Payable |
₹0–3 Lakhs |
0% |
₹0 |
₹3,00,001–₹6 Lakhs |
5% |
₹15,000 |
₹6,00,001–₹9 Lakhs |
10% |
₹30,000 |
₹9,00,001–₹9,50,000 |
15% |
₹7,500 |
|
Total |
₹52,500 |
|
+4% cess |
₹54,600 |
Taxable Income |
Taxed At |
Tax Payable |
₹0–2.5 Lakhs |
0% |
₹0 |
₹2,50,001–₹5 Lakhs |
5% |
₹12,500 |
₹5,00,001–₹7.5 Lakhs |
10% |
₹25,000 |
₹7,50,001–₹10 Lakhs |
15% |
₹37,500 |
|
Total |
₹75,000 |
|
+4% cess |
₹78,000 |
Your total savings are therefore ₹78,000 – ₹54,600 = ₹23,400. This is a 30% reduction in your taxes, which amounts to a sizable sum.
Annual Income of ₹20 Lakhs
Say you earn ₹20 Lakhs a year. Here’s what your taxes will come to when calculated as per the two regimes.
First, consider the standard deduction of ₹50,000.
With this, your taxable income amounts to ₹19,50,000.
This is how you will be taxed under the new slabs of the new regime.
Taxable Income |
Taxed At |
Tax Payable |
₹0–3 Lakhs |
0% |
₹0 |
₹3,00,001–6 Lakhs |
5% |
₹15,000 |
₹6,00,001–9 Lakhs |
10% |
₹30,000 |
₹9,00,001–₹12 Lakhs |
15% |
₹45,000 |
₹12,00,001–₹15 Lakhs |
20% |
₹60,000 |
₹15,00,001–₹19,50,000 |
30% |
₹1,35,000 |
|
Total |
₹2,85,000 |
|
+4% cess |
₹2,96,400 |
Taxable Income |
Taxed At |
Tax Payable |
₹0–2.5 Lakhs |
0% |
₹0 |
₹2,50,001–₹5 Lakhs |
5% |
₹12,500 |
₹5,00,001–₹7.5 Lakhs |
10% |
₹25,000 |
₹7,50,001–₹10 Lakhs |
15% |
₹37,500 |
₹10,00,001–₹12.5 Lakhs |
20% |
₹50,000 |
₹12,50,001–₹15 Lakhs |
25% |
₹62,500 |
₹15,00,001–₹20,00,000 Lakhs |
30% |
₹1,50,000 |
|
Total |
₹3,37,500 |
|
+4% cess |
₹3,51,000 |
Your total savings are therefore ₹3,51,000 – ₹2,96,400 = ₹54,600. This 15.5% reduction in your taxes helps you divert the funds to other pressing obligations.
Considering how these tax reforms work themselves out in actual calculations, it is fair to say that you will pay less tax. Of course, this is if you choose the new regime. However, picking between the old and new tax regimes is something that is up for debate.
Experts advise that if you are able to exhaust the deductions of the old regime to the fullest, you will be better off there and will save more on tax. Yet, the new tax regime is simpler and with the new tax reforms, lightens your tax burden.
So, make an informed choice that best suits your finances.