Budget 2023: New tax regime is now the default tax regime, FM Sitharaman says

Budget 2023 announcements: Finance Minister Nirmala Sitharaman on Wednesday said that the new tax regime is now the default tax regime. While presenting the Budget statement for fiscal 2023-24, Sitharaman told Parliament 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. 

Also read: FM Nirmala Sitharaman addresses Parliament 

Besides, the finance minister also tweaked the income tax rates bringing much relief to salaried individuals. Now, the tax rebate has been extended on income up to Rs 7 lakh under the new tax regime.

Also read: Union Budget 2023: What are the new income tax slabs?

The Finance Ministry introduced its new income tax regime during the Budget 2020, in order to smoothen the process of taxpaying. The 2020 regime, known as the 'Simplified Tax regime,' offered reduced tax rates, with options to forego some deductions and exemptions during income tax calculations.

New Income tax Slabs (for new tax regime)

Rs 0-3 lakh - Nil
Rs 3-6 lakh - 5%
Rs 6-9 lakh - 10%
Rs 9-12 lakh - 15%
Rs 12-15 lakh - 20%
Above Rs 15 lakh - 30%

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.  

Old regime Income Tax Slabs

0 to Rs 2.5 lakh: Nil

Rs 2.5 lakh to Rs 5 lakh: 5%

Rs 5 lakh to Rs 7.5 lakh: 15%

Rs 7.5 lakh to Rs 10 lakh: 20%

Above Rs 10 lakh: 30%

The old regime also offers breathers as tax deductions on your loans, like home and education, to premiums you pay for health insurance. 

Exemptions	Deductions
House Rent Allowance	Public Provident Fund
Leave Travel Allowance	ELSS (Equity Linked Saving Scheme)
Mobile and Internet Reimbursement	Employee Provident Fund
Food Coupons or Vouchers	Life Insurance Premium
Company Leased Car	Principal and Interest component of Home Loan
Standard Deduction	Children Tuition Fees
Uniform Allowance	Health Insurance Premiums
Leave Encashment	Investment in National Pension Scheme
	Tuition fee for Children
	Saving Account Interest

"The middle-class salaried individuals in India have been expecting a reduction in their tax liabilities. The Union Budget 2023-24 has revisited the tax slabs, which have been reduced from six slabs to five slabs, and increased the limits within each slab in the new tax regime. This will result in around 25 per cent reduction in tax liability for individuals with income up to Rs 9 lakh and around 20 per cent reduction in tax liability for individuals with income up to Rs 15 lakh," said Sandeep Agrawal Director and co-founder Teamlease Regtech.