85% taxpayers opt for old regime, 55% fully utilise 80C benefit: survey

Only 15% of India's taxpayers chose the new tax regime, showed the findings of a survey by Clear, an online tax filing platform,  whereas 85% still optied for the old regime.

Budget 2023  caused a lot of confusion among taxpayers regarding the choice between the old and new tax regimes. The government  introduced various incentives in the 2023 Budget to encourage the adoption of the new regime. 

The new tax regime was introduced in Budget 2020 wherein the tax slabs were altered, and taxpayers were offered concessional tax rates. However, those who opt for the new regime cannot claim several exemptions and deductions, such as HRA, LTA, 80C, 80D and more. Because of this, the new tax regime did not have many takers. The government in Budget 2023 introduced 5 key changes to encourage taxpayers to adopt the new regime, noted Clear They are:

 

Higher Tax Rebate Limit: Full tax rebate on an income up to Rs 7 lakh has been introduced. This threshold is Rs 5 lakh under the old tax regime. This means that taxpayers with an income of up to Rs 7 lakh will not have to pay any tax at all under the new tax regime! 

Streamlined Tax Slabs: The tax exemption limit has been increased to Rs 3 lakh and the new tax slabs are: 

"These changes show that the government’s intention is to have taxpayers transition to the new regime and eventually phase out the old one. Though the new regime is now the default tax regime, the old tax regime will continue to exist," said Clear.

The tax rates under both the regimes compare as below:

Standard Deduction and Family Pension Deduction: Salary income: The standard deduction of Rs 50,000, which was only available under the old regime, has now been extended to the new tax regime. This, along with the rebate, makes Rs 7.5 lakh as your tax-free income under the new regime.

Family pension: Those receiving family pension can claim a deduction of Rs 15,000 or 1/3rd of pension, whichever is lower.

Reduced Surcharge for High Net Worth Individuals: The surcharge rate on income over Rs 5 crore has been reduced from 37% to 25%. This move will bring down their effective tax rate 42.74% to 39%.

Higher Leave Encashment Exemption: The exemption limit for non-government employees has been raised from Rs3 lakh to Rs 25 lakh, an 8-fold increase.

Default Regime: Starting from FY 2023-24, the new income tax regime will be set as the default option. If you want to continue using the old regime, you must submit a form at the time of return filing. You will have the option to switch between the two regimes annually.

Gender and age-wise split of filers

Among the total number of taxpayers filing ITR, 70% were male and 30% were women.

Filers aged between 31 and 40 years constitute the largest share at 50%, followed by individuals up to 30 years old at 28%. Taxpayers between 41 and 50 years make up 16%, while those above 50 years account for 7%. 
 

2. Utilisation of 80C Deductions (Old Regime Exclusive)

Within the Old Regime, 80C deductions prove to be significant, with 55% of taxpayers fully utilising this benefit, 17% utilising benefits up to Rs 50,000 and 10% utilising benefits between Rs 1L - Rs 1.5L.

Surprisingly, 10% of individuals have not taken advantage of this provision, indicating the need for increased awareness and education about tax-saving options, revealed the survey

3. Popular Tax Deductions

Among the available tax deductions, 50% of users claimed 80D for tax deductions on medical insurance, while 20% utilised 80CCD(1B) for tax deductions on NPS self-contributions.

Clear provided some FAQs on Old Tax Regime vs New Tax Regime
 

Which tax regime is better for Rs 7 lakh?

If you have an income of Rs 7 lakh, the new tax regime will benefit you.

Which tax regime is better for Rs 10 lakh salary?

If you have an income of Rs 10 lakh, the old tax regime will benefit you only if you have made tax savings investments (deductions other than standard deductions) of over Rs 2,62,500. 

If these deductions are less than Rs 2,62,500, then the new regime will be better for you.

Which tax regime is better for 12 lakhs salary?

The old tax regime is good for you if you have invested more than Rs 3,00,000 in tax saving schemes. If you have invested or spent less than Rs 3,00,000, then the new regime will be better for you.

Which tax regime is better for 15 lakh salary?

Which regime is better for you will depend on the amount of tax-saving investments you have made:

Old regime: if tax-saving investments > Rs. 3,58,000

New regime: if tax-saving investments < Rs 3,58,000
 

Which tax regime is better for 20 lakhs salary?

If you have an income of Rs 20 lakhs, the best regime for you will depend on the tax deductions you are eligible for:

Old regime: if tax-saving investments > Rs. 3,75,000

New regime: if tax-saving investments < Rs 3,75,000

Which tax regime is better for 25 lakhs salary?

If you have an income of Rs 20 lakhs, the best regime for you will depend on the tax deductions you are eligible for:

Old regime: if tax-saving investments > Rs. 3,75,000

New regime: if tax-saving investments < Rs 3,75,000

Which tax regime is better for 30 lakhs salary?

If you have an income of Rs 20 lakhs, the new regime will benefit you if your tax deductions are less than Rs 3,75,000. Else, opt-in for the old tax regime. 

Which tax regime is better for Rs 50 lakh salary?

If you have an income of Rs 50 lakh, the old regime will be beneficial for you if your total tax saving deductions are Rs 3,75,000 or more. Else, opt-in for the new tax regime.