Union Finance Minister Nirmala Sitharaman while presenting Union Budget 2023 announced an increase in the income tax rebate limit from ₹5 lakh to ₹7 lakh under the new income tax regime. She further stated that the new tax regime will now be the default tax regime. However, there was no announcement made regarding taxpayers under the old tax regime.
So after the Budget announcements, discussions and comparisons started over the new and old tax regimes. Which is beneficial? What should you opt for? Will India eventually move to the new tax regime? Experts believe that apart from tax saving the old tax regime also helped in inculcating saving habits.
Old vs new income tax regime: Former Finance Minister P Chidambaram’s take
Finance Minister, P Chidambaram claimed that the budget has ‘betrayed’ the hopes of a majority of Indians. He also said that the Budget lacked the much needed tax relaxation for the public.
Taking to Twitter, Chidambaram said that the importance of savings in a developing country has been abandoned. “My regret is, in this hullabaloo about OTR and NTR, the importance of PERSONAL SAVINGS in a developing country has been jettisoned,” read his tweet.
He further stated that in the absence of a state-provided safety net for the vast majority of people, personal savings is the only social security.
The Finance Minister also proposed to change the tax structure in this regime by reducing the number of tax slabs to 5 and increasing the tax exemption limit to ₹3 lakh.
Salaried people under the new tax regime are required to give up exemptions such as the House Rent Allowance, Leave Travel Allowance, and deductions for specified investments and costs that would otherwise be available under the old tax regime. The old tax regime appears to be more well-liked, especially among taxpayers who earn a salary.
“If you are a taxpayer, don’t rush to conclusions. Do your math, consult a Chartered Accountant,” Chidambaram tweeted.
Archit Gupta, Founder, and CEO of, Clear said that without a doubt, the government is attempting to gradually shift taxpayers from OTR to NTR. One of the essential aspects of pushing a shift is to make it attractive tax-wise, with the announcements made in Budget 2023, it can be said that now there could be fair play between the two regimes.
However, those who can save tax will save tax, by claiming deductions and exemptions and will opt for the old regime, which saves them their hard-earned money, even if a few thousand, he added.
Experts take on the Modi government’s decision to move towards the new tax regime
According to Umesh Kumar Mehta, CIO, of Samco Mutual Fund, the budget’s inclination towards the New Income Tax regime will reduce the incentive to invest in financial products (including MFs’ ELSS, insurance premiums, etc).
Even the decade-old housing sector incentives for interest payments will be the least preferred option, he added.
Archit Gupta said that investors will have more choice and control and perhaps a larger capacity to not only spend the cash but also save in instruments of their choice.
“The other aspect is, as part of the new tax regime, taxpayers no longer have to be pushed to invest in/save in instruments which are ordained by the government. Investors now need to have more awareness and clarity about their financial goals and how they want to get there,” said Gupta.
Tax benefits cannot be the only lens to evaluate, plan and choose instruments for long-term investing. Besides, government-backed fixed-income instruments have been offering fewer and fewer returns as seen in the past decade. By pushing people towards autonomy, not only does the government earn more taxes, people have more cash. All that they now need is guidance to stay committed to their financial goals and have a proper plan for building a retirement corpus, stated Gupta.
What did FM announce for the new income tax regime?
On personal income tax, the FM announced that “Tax for income of ₹0- ₹3 lakh is nil, for income above ₹3 lakh and up to ₹5 lakh will be taxed at 5 per cent, for income of above ₹6 lakh and up to ₹9 lakh will be taxed at 10 per cent and for income above ₹12 lakh and up to ₹15 lakh to be taxed at 20 per cent and above 15 lahks at ₹30 per cent.”
New tax regime more attractive after Budget 2023: Sitharaman
Speaking to reporters after presentation of the Budget, FM Sitharaman said the government wants to make the new tax regime attractive for the taxpayers. However, if someone feels the old regime is more beneficial, he/she can continue in it.
“The ultimate interest is to make the simpler (new) regime more attractive,” Sitharaman said.