Old tax regime or new tax regime 2.0: Expert take on what to pick
2 min read . Updated: 02 Feb 2023, 10:52 PM IST
PremiumTax savings under the new tax for those with income between Rs15 lakhs to ₹5 Cr will range from ₹65,000 to ₹87,750 but no sooner one exceeds the income level of ₹5 cr let’s say at income of ₹6 Cr the savings generated is about Rs23 lakhs.
“This is the first budget in Amrit Kaal… was the opening of today’s Budget speech. Indeed so, as it opened the doors of tax savings for the hard-working middle class. The New Personal Tax Regime (NTPR) brought in 2020 couldn’t attain the expected popularity amongst the taxpayers. Today most of the incentives and reliefs announced by the FM were for the NTPR to make it a preferred choice, clearly, we saw NPTR in its new avatar ‘the NPTR 2.0’.
There was no change made in the Old Personal Tax Regime (OPTR). The basic exemption threshold of INR 250,000 continues, while under the NPTR it has been increased to INR 300,000. The tax slabs under NPTR have been reduced from six to five by widening them to INR 3 lakh at each stage as against INR 2.5. The icing on the cake was the reduction of surcharge rate under the NPTR from 37% to 25% for high income earners i.e. those having an annual taxable income of INR 5 crore or more. This has reduced the maximum marginal rate of tax from 42.74% to 39%. Based on the new tax slabs and change in the peak tax rate under the NPTR 2.0, we provide below a summary of effective rates of taxes.
Continuing the principle of simplicity the standard deduction benefit of INR 50,000 to salaried taxpayers has now been extended to those opting for the NPTR.
Currently, an individual taxpayer having an annual taxable income of INR 5 lakhs does not pay any Income-tax under either of the tax regimes. This has been increased to INR 7 lakhs under the NPTR therefore salaried employee with income of INR 7.5 lakhs after claiming newly introduced standard deduction under the NPTR will not be required to pay any tax.
Here’s an example of possible tax savings at various income levels under OPTR, NPTR erstwhile and NPTR 2.0.
In summary the tax savings under OPTR Vs. NPTR 2.0 for those with income level between INR 15 lakhs to INR 5 Cr. will range from INR 65,000 to INR 87,750 however no sooner one exceeds the income level of INR 5 cr. let’s say at income of INR 6 Cr. the savings generated is about INR 23 lakhs.
Similarly, the tax savings under NPTR Vs. NPTR 2.0 for those with income level between INR 15 lakhs to INR 5 Cr. will range from INR 49,400 to INR 68,250 however no sooner one exceeds the income level of INR 5 cr. let’s say at income of INR 6 Cr. the savings generated is about INR 22.8 lakhs. The FM further went on to state that now the NPTR will be default tax regime and while the taxpayers may opt for the OPTR in case they wish to avail it. This clearly indicates the intention of the government to make a shift towards NPTR and phase out OPTR. It is evident that for the higher income class with income above INR 5 Cr., the NPTR shall be significantly beneficial. But for those having income below INR 5 Cr. may still have to analyze if their deductions on
account investments under 80C of INR 1.5 lakh, NPS employee contribution of INR 50,000, HRA, LTA and exemptions on account of home loan interest etc. might make the OPTR more beneficial. Also if the benefit is marginal and taxpayers do not want the hassle of claiming traditional exemption by furnishing documentation, making investments for claiming deductions may see the NPTR 2.0 a preferred option.
Ravi Jain, Partner, Vialto Partners. With inputs from Vikas Narang, Director, Vialto Partners
