Budget 2023: Old vs New Tax regime - What has changed | New Income Tax regime standard deduction

Budget 2023: Old vs New Tax regime - For high salary people, Sitharaman also reduced surcharge from 37 per cent to 25 per cent for high net worth individuals with income above Rs 2 crore.

Finance minister Nirmala Sitharaman announced no tax for those with annual income of up to Rs 7 lakh. Image Source: PTI

Budget 2023: Old vs New Tax regime - Finance minister Nirmala Sitharaman on February 1 (Wednesday) announced no tax for those with annual income of up to Rs 7 lakh under the new tax regime but made no changes for those who continue in the old regime that provides for tax exemptions and deductions on investments and expenses such as HRA.

In what is being seen as push for salaried class taxpayer to switch to new tax regime where no exemptions on investments is provided, the finance minister in her budget for 2023-24 allowed a standard deduction of Rs 50,000 under the new regime. The old tax regime provides for a similar deduction and no tax on income up to Rs 5 lakh.

Basic exemption - New vs Old Tax regime

The basic exemption limit has been raised to Rs 3 lakh from Rs 2.5 lakh. A Rs 2.5 lakh basic exemption limit is prescribed in old tax regime. The move will lead to a saving of Rs 33,800 for those earning up to Rs 7 lakh annually and opting for new tax regime.

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How much will individuals save?

Those with income up to Rs 10 lakh would save Rs 23,400 and Rs 49,400 saving would accrue to those earning up to Rs 15 lakh.

Surcharge reduced for high salary people

For high salary people, Sitharaman also reduced surcharge from 37 per cent to 25 per cent for high net worth individuals with income above Rs 2 crore. This would translate into a saving of around Rs 20 lakh for those having a salary income of about Rs 5.5 crore.

In her Budget speech, Sitharaman said currently individuals with total income of up to Rs 5 lakh do not pay any tax due to rebate. "It is proposed to increase the rebate for the resident individual under the new regime so that they do not pay tax if their total income is up to Rs 7 lakh," Sitharaman said, adding that the number of slabs would be reduced to five.

New tax slabs (Proposed)

1) Income up to Rs 3 lakh - No tax

2) Rs 3-6 lakh - Tax at 5 per cent

3) Rs 6-9 lakh - 10 per cent

4) Rs 9-12 lakh - 15 per cent

5) Rs 12-15 lakh - 20 per cent

6) Rs 15 lakh and above - 30 per cent

Slabs under Optional tax regime introduced in Budget 2020-21

1) Income up to Rs 2.5 lakh - No tax

2) Rs 2.5 lakh to 5 lakh - 5 per cent tax

3) Rs 5 lakh to Rs 7.5 lakh - 10 per cent

4) Rs 7.5 lakh to Rs 10 lakh - 15 per cent

5) Rs 10 lakh to Rs 12.5 lakh - 20 per cent

6) Rs 12.5 lakh to Rs 15 lakh - 25 per cent

7) Above Rs 15 lakh - 30 per cent

With effect from April 1, these slabs will be modified as per the Budget announcement

New Income Tax regime standard deduction

"I propose to extend the benefit of standard deduction to the new tax regime. Each salaried person with an income of Rs 15.5 lakh or more will thus stand to benefit by Rs 52,500," Sitharaman said.

The government in Budget 2020-21 brought in an optional income tax regime, under which individuals and Hindu Undivided Families (HUFs) were to be taxed at lower rates if they did not avail specified exemptions and deductions, like house rent allowance (HRA), interest on home loan, investments made under Section 80C, 80D and 80CCD.