Union Finance Minister Nirmala Sitharaman did not announce any change in the income tax (IT) brackets in her 2022 budget speech. Hence, without change in the IT rates as well as slabs, an individual taxpayer will continue to have the same tax rates based on the tax regime they choose for the 2022-23 fiscal year. As of April 1, 2022, the start date of the 2022-23 financial year, all individual salaried taxpayers had the option of choosing the old income tax regime or opting for the new tax regime. on income or preferential treatment. Both tax regimes were introduced in 2020.
Income tax slabs and rates for fiscal year 2022-23
|Total income||Old income tax system||New income tax regime|
|Up to Rs 2.5 lakh||None||None|
|From 2,50,001 to Rs 5 lakh||5%||5%|
|From 5,00,001 to Rs 7.5 lakh and from 7,50,001 to Rs 10 lakh||20%||10% and 15%|
|From 10,00,001 to Rs 12.5 lakh, from 12,50,001 to Rs 15 lakh, and from 15,00,001 and above||30%||20%, 25% and 30%|
What are the old and new income tax regimes?
Under the old tax system, a taxpayer can benefit from tax deductions/exemptions such as Housing Allowance (HRA), Travel Allowance (LTA) tax exemptions, Section 80C, 80D deductions, etc. ., whereas, under the new tax regime, taxpayers will have to give up around 70 tax deductions and exemptions. However, the new tax system offers lower tax rates than the old tax system. In addition, under both tax regimes, a taxpayer is entitled to a refund of up to Rs 12,500 under Section 87A of the Income Tax Act 1961. This means that people who have a net taxable income of up to Rs 5 lakh would not have to pay any income tax regardless of the tax regime chosen by them.
How to choose between the old and the new income tax system?
The main difference between the two tax regimes is the difference in slab rates. The income tax that taxpayers pay is based on a slab system in India which is established taking into account the average income of individuals.
An important difference between the two tax systems is the possibility of reducing the tax payable. Although no deductions are allowed under the tax system, a taxpayer has a myriad of options under the old tax system. While the new tax regime gives taxpayers the option of claiming zero deduction or zero exemption options, the old regime provides approximately 70 deductions as well as exemptions to reduce their taxable income. The deductions of the old tax system allowed taxpayers to reduce the amount of tax by investing, saving, etc.
Old Tax Regime vs New Tax Regime: Which is Better?
In order to determine which tax regime is best, the taxpayer must calculate the income tax payable at the applicable tax rates. For example, at the old tax slab rates, salaried persons must calculate their tax payable after taking advantage of all eligible exemptions and deductions from their income. Taxpayers can claim exemption for HRA, LTA and the standard deduction of Rs 50,000 under the old tax regime. In addition, taxpayers can also claim deductions under Section 80C up to Rs 1.5 lakh, National Pension Scheme (NPS) contribution, home loan interest deduction, etc.
For the new tax system, the taxpayer must calculate the income tax to be paid according to the rates of the tax bracket indicated under it. Thus, they can compare and choose the tax regime that suits them best. The choice between the old or the new income tax system is up to the taxpayer and depends on his income structure, his situation and the deductions available.
Who should opt for the old tax system and who should opt for the new one?
The choice between income tax regimes may depend on several factors such as current income level, income structure, etc. Taxpayers will need to determine their tax liability under the old and new tax regimes before deciding which is beneficial.
The Income Tax Department has also introduced an easy-to-use calculator that calculates a taxpayer’s tax liability under both tax regimes. Many taxpayers benefit from the old regime when they opt for more tax deductions under Section 80C and benefits available in their salary structure, for example, receiving part of the CTC as a refund, claiming HRA, etc.
Is it allowed to switch several times between the old and the new income tax system?
Salaried individual taxpayers can make this election each year. Taxpayers with income from head office property, salary, other sources, and capital gains can choose to switch between the old and new regimes each year. However, taxpayers whose income relates to a business or profession have only one option to revert to the old tax regime after opting for the new tax regime.