Old vs new income tax slabs in India

Taxes are imposed at various rates based on the taxpayer's income. This means the rates change depending on income levels. These tax brackets and their related tax rates are specified by law and are referred to as "income tax slabs." At present, the old tax regime and the new tax regime are the two options available to Indian taxpayers.

In addition to the existing tax regime, a new tax regime was implemented. Taxpayers can choose between these income tax regimes and pay taxes accordingly. Listed below are two significant distinctions between these two income tax systems in India:

• The new tax regime has more tax slabs with lower tax rates than the old tax regime.
• If you choose the new tax system, you cannot take advantage of any of the significant exemptions and deductions that were available under the old tax system, such as Sections 80C and 80D.

According to the Income Tax Act of 1961, the following are some of the various types of taxable income in India:

• Business Income
• Rental income or any other income generated through property
• Income received through lotteries, horse races, and others
• Capital gain incomes
• Gifts received from friends and families
• Interest gained through savings bank account, fixed deposits, and others

Listed below are some of the exemptions and deductions that are no longer applicable under the new tax scheme.

• Leave Travel Allowance
• House Rent Allowance
• Standard deduction of Rs. 50,000 for salaried individuals
• Interest deductions from savings account deposits made in accordance with Section 80TTA/TTB
• Tax-saving schemes such as insurance premiums, public provident funds, National Pension Schemes, and others under Chapter VI-A, have various subsections under Section 80.
• Benefit on interest paid on home loan under Section 24
• Income received from certain sources like life insurance, agricultural income, and others.
• Standard rent deduction
• Retirement leave encashment
• Amount upto Rs. 5,00,000 under the Voluntary Retirement Scheme (VRS).

In India, individual tax payers currently have the option to select either the old tax regime or the new tax regime. But before you decide, take into account these 5 significant factors:

• Tax Saving Exemptions and Deductions:

Compared to the previous tax system, the new system will have more income tax slabs and lower income tax slab rates in FY 2022–2023 (FY2022). But there aren't many exclusions and deductions available under the new tax system. Therefore, compare the exemptions and deductions thoroughly before choosing between the old and new income tax slabs.

• Age-Based Lower Tax Exemption Limit:

According to income tax slab rates in AY 2023–2024, the old tax system offers larger tax exemptions for elderly citizens and super senior citizens of Rs. 3 lakh and Rs. 5 lakh, respectively. Under the new tax system, which offers the same Rs. 2.5 lakh exemption limit regardless of the taxpayer's age, this greater limit is not available.

• Consider Benefits Instead of Tax Savings:

Under the old tax system, expenditures and investments that save on taxes, such as term life insurance, the Public Provident Fund, and the National Pension System, offer a double advantage. Thus, you pay less in taxes, but they also offer advantages like long-term wealth growth or family financial security. You do not obtain any tax-saving benefits under the new tax system.