Old tax regime vs new tax regime: New tax regime's acceptance will take time, say experts

BT Budget Roundtable 2023: Economists feel that the Centre is trying to give the taxpayers an option between long-term and short-term priorities by offering a simpler, hassle-free tax regime with minimal compliance burden, but taxpayers will take time to adopt the new regime. Finance Minister Nirmala Sitharaman, while presenting the Budget, said that the new tax regime will be the default tax regime from now, adding that the government will be adopting a number of measures to make the voluntary tax regime more attractive and will forego revenue in the process. 
The new tax regime, which was introduced in the 2020 Budget, is known as the 'Simplified Tax regime,' and offers reduced tax rates, if the taxpayer is ready to forego some deductions and exemptions during income tax calculations. 

Talking about the new tax regime, Soumya Kanti Ghosh, Chief Economic Advisor, State Bank of India, said: “The government is trying to give the taxpayers an option to choose between long-term and short-term priorities. The new regime will take time to be accepted as we have seen a very long period of deductions and exemptions. The government is giving the option to choose between long-term and short-term savings.”  

Adding to this, Abheek Barua, Chief Economist and Executive Vice President, HDFC Bank Ltd, said: “The new tax regime will take some time to be adopted. It is a default for the new entrants though. It is true that the new regime of tax will dampen the savings regime in the short term, but in the long-term payoff, the new tax regime is much cleaner, and less messy for the taxpayers. It is transparent and easy to follow."

On asking whether the old tax will be removed totally, Barua added that the old system will take some time to go away. 

On the new tax regime, Finance minister Sitharaman said: "This country has been waiting for direct taxation to be simplified. Therefore the new taxation regime that we brought in for direct taxation two-three years ago has now got greater incentives...are greater attraction so that people can unhesitatingly move from the old to the new. We are not compelling anybody. Those who want to remain in Old can still remain there. But the new one is attractive because it gives a greater rebate. It also provides for simplified & smaller slabs, smaller lower rates of taxation, and also slabs which are nicely broken down.

The new income tax slabs: 

If one looks at the old tax regime, the tax rates are higher when compared to the new tax regime. But the old regime offers a number of deductions or tax exemptions such as house rent allowance (HRA), leave travel allowance (LTA) tax exemptions, Section 80C, 80 D deductions, etc.  Under the old system, income up to Rs 2.5 lakh is exempted from personal income tax. The biggest section for deduction for tax-paying individuals is Section 80C, by which one can reduce the taxable income by Rs 1.5 lakh in one go.   

Also read: Union Budget 2023-24: Why old tax regime is still better than new tax regime