Full Length Research Paper
Examining
the New Income Tax System in Comparison to the Old Tax System: A Critical Study
Rakesh Bharadwaj1[*]
and Dr. Ashish Kumar Singhal2
1-Research Scholar, ICFAI Law School, The
ICFAI University, Dehradun, Uttarakhand, India.
2-Associate Professor, ICFAI Law School, The
ICFAI University, Dehradun, Uttarakhand, India.
Corresponding
Author: Key
words: Income Tax, Policy, Old Tax,
New Tax
ARTICLE DETAILS ABSTRACT
Rakesh Bharadwaj
Government revenue is
generated in large part by individuals being required to pay income taxes.
The Indian government introduced a brand-new system of individual income
tax in its 2020 budget. Both the old and new tax regimes will be available
to taxpayers beginning in fiscal years 2020 and 2021. The union budget for
2023–2024 includes several changes to the new tax structure, as announced
by the finance minister. Rather than being an option that taxpayers can
select, the new system will now be considered the "default"
choice. Still, nothing has changed with the old tax system. In view of the
changes introduced by the new tax system in Budget 2023–2024, this essay
makes an effort to determine which system would be most beneficial to
taxpayers. The data used in this study came entirely from secondary
sources, such as scholarly publications, news stories, books, and
newspapers. In this article, the "changes made in the new tax regime
under the union budget 2023–2024" are emphasized.
1. Introduction
Business and employee income, as well as the prices of specific goods
and services, are subject to taxes, which are obligatory monetary payments to
state coffers. Around two thousand years ago, Caesar Augustus sent an edict
requiring taxes all throughout the world. Taxes were levied under the Roman,
Greek, and German empires as well, sometimes according to turnover and other
times according to occupation. Over the course of many centuries, the Monarch
was enriched by the tax revenue.
A number of Indian dynasties, such as the Maurya
and Gupta, instituted tax systems. Grain, cattle, and other agricultural
products served as tax collectors. A number of tax systems were detailed in the
ancient economic and political treatise known as the Arthashastra.
The various taxation systems that followed with the modern system having
its roots hundreds of years ago. (Shankar Prasad 2024). The New Tax Regime was implemented in the 2020-21
Union Budget by the government in an attempt to streamline the direct
tax. The New Income Tax System is Voluntary. The taxpayer can choose to keep
using the old tax system or switch to a new one. As an employee, you get to
pick this option at the beginning of the year and then you get to alter it
again the following year. Having said that, the opportunity
to select the New Tax system is one-time only for businesses and professions.
Under the new tax system, individuals with incomes below ₹7 lakhs would
not be required to make any investments in order to qualify for exemptions; in
fact, their whole income would be exempt from taxes regardless of the amount
invested. The middle class will have more disposable income to spend as they
won't have to worry as much about saving for tax breaks or investing their
money wisely. By allowing taxpayers to claim certain deductions, the New Tax
Regime has become more appealing according to Union Budget 2023.
Nevertheless, the former tax system will continue in place, as the
minister of finance for the union budget for 2023–2024 has suggested certain
changes to the latter. Budget projections for 2023 and 2024 indicate that the
new tax system will serve as the "default" choice. So,
taxpayers have a choice between the old and new tax regimes; if they don't want
to switch, the system will switch for them.
Incomes up to Rs. 15 lakhs are subject to a
reduced rate in each of the six tax bands under the new regime. To those who
invest little, the new income tax scheme will be a boon. The majority of wage earners
have several sources of income, including rent or mortgage payments, health
insurance premiums, medical insurance, provident fund (PF) or national pension
system (NPS) contributions, and interest from savings accounts. But because
there are different income bands and tax rates for those who choose the New Tax
Regime, there aren't a lot of deductions and exemptions to choose from. It
follows that few individual taxpayers have chosen the new tax regime during the
previous two years, suggesting that it is unpopular. A new personal income tax system with lower rates
and additional tax slabs was suggested in Budget 2020, but all deductions and
exemptions were deleted. Taxpayers were subsequently given the choice between
the old and new tax systems by the Finance Minister. (Kamble and SuhanaIsak 2023)
Objectives of the study:
1. Researching the
differences and similarities between the previous and current tax systems.
2. Researching the 2023–2024 union budget's revised
tax system.
3. Determine which tax system is best for the people who pay taxes.
2. Data Collection and Research technique
This research article makes use of a descriptive and analytical research
technique. All of the data used in this paper came from other sources. Sources
for secondary data include official documents, books, journals, articles, and
newspapers.
3. The System of Taxes:
Direct and indirect taxes are the two main types of Indian taxes. One
kind of direct tax that is well-known is income tax. It is the main way the
government makes money. It is mandatory for all taxpayers to pay their taxes as
stated in the Income Tax Act of 1961. In the 2020 budget, India's finance
minister introduced a new tax system, thereby offering taxpayers a choice
between two different systems. Nonetheless, in the Union Budget 2023–2024, the
Minister of Finance suggested certain improvements to the new tax structure
that would be advantageous to taxpayers.
4. Tax Slabs & Comparison
between Tax Slab Rates.
4.1 Slab rates
As Per Old Tax Regime (Before
2021)
|
Income (Rs) |
Rates (%) |
|
Upto 2.5 lakhs |
Nil |
|
2.5 lakhs-5 lakhs |
5% |
|
5 lakhs-10 lakhs |
20% |
|
Above 10 lakhs |
30% |
As per New Tax Regime (Introduced in 2021)
|
Income (Rs) |
Rates (%) |
|
Upto 2.5 lakhs |
Nil |
|
2.5 lakhs-5 lakhs |
5% |
|
5 lakhs-7.5 lakhs |
10% |
|
7.5 lakhs-10 lakhs |
15% |
|
10 lakhs-12.5 lakhs |
20% |
|
12.5 lakhs-15 lakhs |
25% |
|
Above 15 lakhs |
30% |
Changes made in New Tax Regime (Union Budget 2023-2024)
|
Income (Rs) |
Rate (Rs) |
|
Upto 3 lakhs |
Nil |
|
3 lakhs-6 lakhs |
5% |
|
6 lakhs-9lakhs |
10% |
|
9 lakhs-12 lakhs |
15% |
|
12 lakhs-15 lakhs |
20% |
|
Above 15 lakhs |
30% |
There were fewer tax slabs under the previous system, but the rates were
substantially higher, and the effects were worse. Therefore, in the 2020
budget, the Minister of Finance instituted a new tax structure. With this
system, taxpayers may choose between paying their taxes under the old or new
system, which had more tax slabs and reduced rates.
Due to the elimination of benefits linked with specific exemptions, deductions,
and the Standard Deduction under the New Tax Regime, the vast majority of
taxpayers continued to choose the old system even after its implementation.
"The Term standard deduction refers to the portion of income not subject
to tax that can be used to reduce tax liability."
However, the finance minister made certain adjustments to the slab rate for the
new tax regime for FY 2023–2024 in the union budget for that year. Anyone can
now choose to pay their taxes according to the previous system or the new slabs
that have been offered.
4.2 New Proposed Tax Slabs for F.Y. 2023-2024
|
Old Tax Regime(F.Y. 2023-2024) |
New Tax Regime (F.Y. 2023-2024) |
|
0-2.5 lakhs : Nil |
O-3 lakhs : Nil |
|
2.5 lakhs-5 lakhs
: 5% |
3 lakhs-6 lakhs
: 5% |
|
5 lakhs-10 lakhs
: 20% |
6 lakhs-9 lakhs
: 10% |
|
Above 10 lakhs : 30% |
9 lakhs-12 lakhs
: 15% |
|
|
12 lakhs-15 lakhs
: 20% |
|
|
Above 15 lakhs : 30% |
4.3 Comparative study of new tax regime introduced in budget 2020 & in budget
2023
|
Introduced in Budget
2020 |
Changes made in Budegt 2023 |
|
Rebate Limit is
Rs 5 Lakhs. |
Rebate Limit extended to Rs 7 lakhs. |
|
No benefits of deductions. |
Standard Deduction allowed of Rs
50,000 |
|
No benefit of NPS |
NPS allowed uptoRs 50,000 |
Surcharge table
|
Old
surcharge rates |
New
proposed surcharge |
|
Above 50
lakhs upto 1 crore: 10% |
Above 50
lakhs upto 1 crore: 10% |
|
Above 1 crore upto 2 crore: 15% |
Above 1 crore upto 2 crore: 15% |
|
Above 2 crore upto 5 crore: 25% |
Above 2 crore: 25% |
|
Above 5 crore: 37% |
- |
(Highest Surcharge
reduced from 37% to 25% in the union budget 2023-2024)
4.4 Advantages and Disadvantages of the New Tax Regime (According to changes
made in union budget 2023-2024)
A.
The Advantages of the New Tax Regime :
1.
Under new tax regime, upto Rs 3 lakhs
a taxpayer has
no
need to pay tax.
2.
Rebate limit extended upto Rs 7 lakhs.
3.
Standard Deduction allowable of Rs 50,000.
4.
NPS allowable upto
Rs 50,000.
B.
The Disadvantages of the New Tax Regime :
1.
No HRA or 80GG Exemptions.
2.
No deductions under chapter
6A (80C, 80D etc)
3.
No home loan benefits.
4.
No Leave travelling Allowance.
5. Results
1. Taxpayers who were eligible for different deductions under the old
regime had their tax liability lowered, which was a benefit.
2. While tax preparation was crucial under the previous regime, it is now moot
under the current one.
3. Under the new tax system, individuals with an income of up to Rs 7,50,000 will benefit.
4. Under the new tax system, you can deduct up to Rs
50,000 as a standard deduction.
5. Taxpayers can benefit from both regimes up to Rs
5 lakh.
6. The new tax system does not allow taxpayers to invest or save money.
6. Future Scope
1. The new tax system ought to permit a variety of deductions and
exemptions.
2. It is my recommendation that taxpayers make use of the previous tax
system through careful tax planning.
3. The taxpayer should carefully consider all of their options before
making a choice, as the new tax regime will be the default.
4. Taxpayers should have the ability to move between the new and old
systems, or vice versa, as needed.
7. Conclusion
Because of the new tax system, taxpayers are more liberated. In the
union budget for 2023–2024, only individuals opting for the new system will be
eligible for personal tax cuts. The new income tax system would have an effect
on the income of middle-class taxpayers. Since the new tax system does not
provide any deductions or exemptions, tax planning is become unnecessary. Our
previous research led us to the conclusion that taxpayers benefit from both
regimes up to Rs. 5 lakhs. Nevertheless, one should
ascertain their tax liability prior to selecting the optimal course of action
if their revenue exceeds Rs. 5 lakhs. The new tax
system is beneficial for individuals with incomes up to Rs
7.5 lakhs because of the basic deduction of Rs
50,000. In the new tax system, there is a cap of 7 lakhs on refunds. Selecting
the prior tax system is the way to go if one has meticulously planned their
taxes, taken use of all available deductions, invested well, and anticipated
future benefits; doing so will reduce their tax bill.
8. References
Dr. H.C Mehrotra and Dr. S.P Goyal: Problems
and Solutions in Income Tax | 38th Edition | A.Y. 2022-23 - by
https://taxguru.in/income-tax/comparison-v-s-tax-regime.html
https://www.businesstoday.in/personal-finance/tax/story/old-vs-new-tax-regime-make-sure-which-one-to-opt-for-with-these-4-tips-369435-2023-02-08
https://www.cnbctv18.com/personal-finance/budget-2023-old-tax-regime-vs-new-income-tax-slab-which-is-better-comparison-income-15828361.htm
https://www.etmoney.com/learn/income-tax/new-tax-regime-or-old-what-should-you-pick/
https://www.india.gov.in/spotlight/union-budget-2023-2024
https://www.india.gov.in/spotlight/union-budget-fy-2022-2023
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