Key differences between old and new tax regimes you need to know in 2022

The budget for the financial year 2022-23 did not bring any noteworthy change in the existing tax slabs introduced in the pre-COVID budget released in 2020. The pandemic has changed how taxpayers choose their tax slabs based on their potential, practical and immediate requirements. With the new tax regime, the tax rates were reduced significantly.

Difference between old and new tax regimes

As compared to the old tax regime, the new tax regime has more tax slabs. New tax regime slabs divide the taxpayers into more diverse income groups. Along with this, the new tax regime gives concessional tax rates for different slabs. The tax rates, according to slabs, are lower than the old tax regime.

The deductions and exemptions given under the old tax regime are not available in the new regime tax slab.

Why do you need to understand the difference between old and new tax regimes?

The income Tax department gives the option of choosing between the new tax regime and the old tax regime for taxpayers. Many of you might be one of the people who are confused about which one to opt for. There are some basic differences between the old and new tax regimes. What you need to decide is which one is more beneficial to you after a detailed analysis of factors like deductions, exemptions and slabs of the tax regime.

Difference between old and new tax regimes for taxpayers with higher income

People falling under the higher income category might find the old tax regime more beneficial. The old tax regime offers many exemptions and deductions, which will prove to be beneficial for you.

The new tax regime offers some deductions or exemptions.

Difference between old and new tax regimes for taxpayers with lower income

If you fall under the low-income group, then you might want to opt for the new tax regime. The new regime tax slab has variety. In the old tax regime, the tax slab was the same for the people falling under the income group of 5,00,000 and 10,00,000.

However, this has changed in the new tax regime. This means tax savings for the lower-income group in the new tax regime.

Tax rates under slabs of the old tax regime

In the old tax regime, the tax slabs were not diversified as the ones in the new tax regime. Income below 2,50,000 is not taxable. The income between 2,50,000 and 5,00,000 is taxable up to 5%. People in the 5,00,000 to 10,00,000 income group fall under the 20% category. Anyone above 10,00,000 falls under the 30% tax rate slab.

Tax rates under slabs of the new tax regime

The new tax regime has far more diversified tax slabs. It has more tax rates according to income groups. For example, the new tax regime has introduced tax rates of 10%, 15% and 25%. Earlier, it was divided into 5%, 20% and 30%. Now, it is divided into 5%, 10%, 15%, 20%, 25% and 30%.

A comparison table to understand rates under old and new tax regimes:

Tax slabs	Rates under the old tax regime in %	Rates under new tax regime in %
0-2,50,000	Nil	Nil
2,50,000-5,00,000	5	5
5,00,000-7,50,000	20	10
7,50,000-10,00,000	20	15
10,00,000-12,50,000	30	20
12,50,000-15,00,000	30	25
15,00,000 and above	30	30

Deductions and exemptions in the old tax regime

While the tax rates are more diversified in the new tax regime, the old tax regime offers many options for deductions and exemptions. It helps you if you want to reduce your tax liability. The Income Tax Act gives taxpayers around seventy tax exemptions and deductions. It allows taxpayers to lower their income tax.

To lower the income tax, you can choose deductions and exemptions like:

1. Savings.
2. Investment.
3. Spending on select items.
4. Loans.
5. Allowances.
6. Insurance, etc.

Exemptions are the allowances that you receive as a part of your salary. It includes the house rent allowance, travel allowance, leaves allowance, etc. You can claim up to fifty-thousand rupees (50,000) under House and Travel allowances. Along with this, you can also claim tax deductions under Section 80C on housing loans, specified pension funds, medical insurance, NPS contribution and investment. You can claim up to Rs. 1.5 lakh under Section 80C.

Deductions and exemptions in the new tax regime

The new tax regime does not provide any deductions or exemptions in its rules. However, the government has retained a few exemptions:

1. Transport allowance for specially-abled.
2. Conveyance allowance as part of the salary.
3. The compensation received on travel, tour or transfer.
4. Daily allowance incurred due to absence from a regular place of work.
5. Deduction under 80JJA.
6. Deduction for employer’s contribution in NPS account under Section 80CCD (2).

Which tax regime is better for you?

You have to decide which tax regime gives you better benefits. If the deductions and exemptions of the old tax regime are more beneficial than the lower tax rates of the new tax regime, then you can choose the old tax regime. However, if it is the opposite case, then you can opt for the new tax regime. It needs careful consideration of various factors like,

1. Your income.
2. Income composition.
3. Source of income.
4. Exemptions you can claim.
5. Deductions you can claim.
6. Investments.
7. Savings.
8. Loans.
9. Insurance and Pensions.
10. Tax rates in the old tax regime slab and new regime tax slab.

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