Budget: New tax regime is now default, but can you still opt for the old one?

Finance Minister Nirmala Sitharaman shook up the tax slabs, making big changes to them in her election Budget

Finance Minister Nirmala Sitharaman on Wednesday announced no tax for those with an annual income of up to Rs 7 lakh under the new tax regime. She also announced that the new tax regime will now be the default one. What does this mean for the old tax regime?

The old tax regime which provides for tax exemptions and deductions on investments and expenses such as HRA, is still functional, but a taxpayer now has to opt-in for it. The Finance Minister made no changes to it in her FY24 Budget.

Read | Budget 2023: New tax regime and how it differs from old tax regime

FM Sitharaman said the reforms to the new regime are intended to make it more attractive to the taxpayer. "The country is waiting for direct taxation to be simpler and easier in compliance. This move (the change in tax slabs) is to get people to move unhesitatingly from the old tax regime to the new one," Sitharaman said while the post-Budget press briefing.

In what is being seen as push for salaried class taxpayer to switch to new tax regime where no exemptions on investments is provided, the finance minister in her budget for 2023-24 allowed a standard deduction of Rs 50,000 under the new regime.

The old tax regime provides for a similar deduction and no tax on income up to Rs 5 lakh.

Also, the basic exemption limit has been raised to Rs 3 lakh from Rs 2.5 lakh. A Rs 2.5 lakh basic exemption limit is prescribed in old tax regime.

The move will lead to a saving of Rs 33,800 for those earning up to Rs 7 lakh annually and opting for new tax regime. Those with income up to Rs 10 lakh would save Rs 23,400 and Rs 49,400 saving would accrue to those earning up to Rs 15 lakh.

For high-salary people, Sitharaman also reduced the surcharge from 37 per cent to 25 per cent for high-net-worth individuals with income above Rs 2 crore.

This would translate into a saving of around Rs 20 lakh for those having a salary income of about Rs 5.5 crore.

New tax regime may not be for everyone

Preeti Sharma, Partner, Tax and Regulatory Services, BDO India, said that FM Nirmala Sitharaman has made conscious efforts to make the new regime more attractive for the taxpayers. "It shall now be considered as a default regime for all the taxpayers, but that does not necessarily mean a better regime for all. Taxpayers still need to look at their personal situation, various investments and expenditure that are eligible for tax exemption under the old regime and then decide which regime is better for them," Sharma told IANS.

Deepashree Shetty, Associate Partner, Tax and Regulatory Services, BDO India, said several measures have been introduced to promote the NTR for individual taxpayers. These include increasing the basic exemption limit, change in the income slabs, extending the scope of tax rebate, extension of standard deduction, etc.