Old Income Tax Vs New Income Tax Regime

Finance Minister Nirmala Sitharaman introduced the new tax regime during her Budget 2020 speech. However, taxpayers can choose between the new and old regimes. Salaried taxpayers can switch between the regimes every year, while taxpayers with income from profession or business can go back to the older regime only once after opting for the new regime.

But as there are significant differences between both income tax regimes, it is essential for taxpayers to closely analyse both options before they start working on their tax-saving strategies for 2022-23. Let’s take a detailed look at the tax rates, advantages, and limitations of old vs new tax regimes to help you make the right decision-

What are the Old Tax Regime Income Tax Rates

One of the primary reasons for the introduction of a new tax regime is the complexity of the older regime. However, even with the complex tax structure and higher rates, several taxpayers opt for the older regime as it offers several tax deductions and exemptions.

The old regime tax slabs are as follows-

Old Regime Tax Slabs (FY 2022-23)	Income Tax Rate
Up to INR 2.5 lakhs	NIL
INR 2.5 lakhs to INR 5 lakhs	5% on the total income above INR 2.5 lakhs
INR 5 lakhs to INR 10 lakhs	20% on the total income above INR 5 lakhs + INR 12,500
Above INR 10 lakhs	30% on the total income above INR 10 lakhs + INR 1,12,500

What are the New Tax Regime Income Tax Rates?

There is a significant difference between the new and old tax regimes. In fact, there are two key differences.

First, the newer tax regime has more liberalized slabs and lower rates for taxpayers with income of up to INR 15 lakhs. Second, the majority of the tax deductions and exemptions available with the older regime are not available with the new regime.

Here are the new regime tax slabs-

New Regime Tax Slabs (FY 2022-23)	Income Tax Rate
Up to INR 2.5 lakhs	NIL
INR 2.5 lakhs to INR 5 lakhs	5% on the total income above INR 2.5 lakhs
INR 5 lakhs to INR 7.5 lakhs	10% on the total income above INR 5 lakhs + INR 12,500
INR 7.5 lakhs to INR 10 lakhs	15% on the total income above INR 7.5 lakhs + INR 37,500
INR 10 lakhs to INR 12.5 lakhs	20% on the total income above INR 10 lakhs + INR 75,000
INR 12.5 lakhs to INR 15 lakhs	25% on the total income above INR 12.5 lakhs + INR 1,12,500
INR 15 lakhs and above	30% on the total income above INR 15 lakhs + INR 1,87,500

What are the Advantages of Opting for the Old Tax Regime?

The most significant advantage of the old tax regime is the deductions and exemptions it offers. There are several tax-saving instruments that encourage taxpayers to save and invest for the future while also reducing their income tax liabilities.

What are the Limitations of Option for the Old Tax Regime?

As for the limitations of the old regime, here are some of the most significant ones -

The income tax rates are higher
Tax-saving investments have stringent lock-ins
Many taxpayers invest in tax-saving instruments with the sole purpose of saving taxes and not according to their investment needs

What are the Advantages of Opting for the New Tax Regime?

With the new income tax regime, the tax rates are lower for incomes up to INR 15 lakhs. Moreover, as most tax exemptions and deductions are not available in the new regime, taxpayers can invest as per their investment needs.

What are the Limitations of Option for the New Tax Regime?

While the new regime offers some significant benefits, it also has a few drawbacks. For instance, without exemptions and deductions, the taxable income for the financial year will be higher compared to what it could be under the older regime.

How to Choose Between Old and New Tax Regimes?

Unfortunately, there is no single answer to this question. While the older regime can offer more tax savings to some, the newer regime can prove more tax-efficient for others. But there is a simple way to make this decision. Take a look -

Calculate all the deductions and exemptions you are claiming and subtract them from your annual income to know the total taxable income
Now, check what the taxable income will be without the deductions
Once you have your taxable income with and without the deductions, check the income tax slab you fall under and the tax rate of both regimes to make the right selection

Moreover, if manual calculations are too complicated, you can also look for old vs new tax regime calculator online to simplify the process.

Make Tax-Saving Investments and Pay Taxes with AU Small Finance Bank

AU Small Finance Bank, the Largest Small Finance Bank in India, offers instant access to a host of tax-saving investments, including 5-Year Tax Saving Fixed Deposit, ELSS Mutual Funds, the National Pension System, Atal Pension Yojana, and more. Moreover, it also has a one-stop Tax Payment platform where customers can conveniently pay their taxes and keep track of all the tax documents in a unified manner.

Whether you choose the old or the new tax regime, AU Small Finance Bank can be your reliable banking and tax-planning partner.