« How to invest in mutual funds which are taxed at slab rates from 1st April 2023 SENSEX vs PPF report card 2023: should you invest 1.5 lakhs in PPF in April? »

Should you choose the new tax regime from 1st April 2023?

Posted on 01 Apr 2023
Author: Sayan Sircar

Tags: Tax ; Calculator

5 mins read

This article describes how to use the Arthgyaan goal-based investing tool as a calculator to determine if switching to the New Tax Regime makes sense.

Should you choose the new tax regime from 1st April 2023?

📚 Topics covered:

What is the new tax regime?
Switching regimes and default options
Using the calculator
Case 1: Income 20 lakhs, usual deductions
Case 2: Income 20 lakhs, usual deductions but no HRA
Case 3: Income 30 lakhs, usual deductions, home loan
Case 4: Income 30 lakhs, usual deductions, HRA
Case 5: Income 30 lakhs, usual deductions, no HRA, no home loan
Summing up

What is the new tax regime?

Budget 2020 introduced the New Tax Regime (NTR) with the premise of lower overall taxes on income as long as tax deductions like 80C, 80D, HRA etc., are foregone by the investor. In contrast, the Old Tax Regime (OTR) allows all of these deductions but with a higher tax on the post-deduction income. As per Budget 2023,

Old tax Regime slabs for post-deduction income are:

0-2.5L - 0%
2.5-5L - 5%
5-10L - 20%
10L+ - 30%

New tax Regime slabs for post-deduction income are:

0-3L - 0%
3-6L - 5%
6-9L - 10%
9-12L - 15%
12-15L - 20%
15L+ - 30%

Given how these slabs are structured, there is a breakeven point based on the total amount of deductions you usually take so that one of the tax regimes leads to lower taxes. Now that NTR is the default option, it is essential to correctly choose the tax regime, as many companies will open up the choice in April.

Recent articles:

1 / 3

<p>This article explains if Indian investors should consider investing in gilt or government securities mutual funds for their goals.</p>

2 / 3

<p>This article compiles an exhaustive list of FAQs on the concept of NRE Fixed Deposits (NRE FD).</p>

3 / 3

<p>This article gives you a glimpse of how the power of compounding creates a multi-crore portfolio in retirement.</p>

❮ ❯

Join the Arthgyaan WhatsApp community: You can stay updated on our latest content and learn about our webinars. Our community is fully private so that no one, other than the admin, can see your name or number. Also, we will not spam you.

Switching regimes and default options

An individual salaried taxpayer can switch between the old and new tax regimes once a year without restrictions. If you have yet to specify the regime to your employer, then the new tax regime will be used by default. You must also file your ITR on time if you wish to use the old tax regime.

Taxpayers can also declare one tax regime (old or new) to their employer and then switch to the other one when filing.

This article helps you decide, based on your tax planning and the deductions you wish to take, which regime will be beneficial for you this financial year, i.e. FY2023-24, which starts on 1st April 2023. However, you should remember that if you declare the wrong tax regime and later add/remove deductions, more tax will get deducted. Therefore, you will have to ask for a refund when filing.

There are other financial tasks due in April. Here is a list: How should you plan your investments and taxes in April?.

Using the calculator

We use the Arthgyaan Goal-based investing calculator to formulate the investment model with all the above assumptions and goals. There is a link to download a pre-filled copy of the Google sheet via the button below.

Important: You must be logged into your Google Account on a laptop/desktop (and not on a phone) to access the sheet.

Once you get your sheet, you can get access to video tutorials in the howto tab.

We show a few cases below.

Case 1: Income 20 lakhs, usual deductions

Old vs new tax regime case 1

Case 2: Income 20 lakhs, usual deductions but no HRA

Old vs new tax regime case 2

Case 3: Income 30 lakhs, usual deductions, home loan

Old vs new tax regime case 3

Case 4: Income 30 lakhs, usual deductions, HRA

Old vs new tax regime case 4

Case 5: Income 30 lakhs, usual deductions, no HRA, no home loan

Old vs new tax regime case 5

All of these case studies are present as separate tabs in the Sheet.

Summing up

As in all the cases above, the differentiating factor is the quantum of deductions. As long as the amount of deductions from 80C, 80D, home loan, HRA etc., exceeds ₹3.75 lakhs (we will ignore the ₹50,000 standard deduction since that is the same for both regimes), the old tax regime is better.

The old tax regime, therefore, makes sense only if you have substantial valid investments via 80C, pay a good amount of medical insurance premium under 80D and have either a home loan or receive HRA.

The new tax regime makes sense

if you have a high enough income so that 80C is taken care of by default by EPF but do not have a home loan or no HRA since the could be very close or less to 10% of your basic pay
if you stay in your own home without a home loan and do not have to pay rent or EMI
if you have planned your investments as per goal-based investing and do not have an excess allocation to debt investments like PPF or insurance plans

If you are still determining your deductions, you can play around with your options in the calculator to see what works best for you.

What's next? You can join the Arthgyaan WhatsApp community

You can stay updated on our latest content and learn about our webinars. Our community is fully private so that no one, other than the admin, can see your name or number. Also, we will not spam you.

Discover an article from the archives

Worked out case studies for goal-based investing

Case study: can this double income single kid family reach FIRE at 50?

This article shows how a double-income couple with a 2-year old reach their FIRE dream at the age of 50.
Case study: how a family in their mid-30s with a newborn kid can FIRE and invest in real estate?

This article shows how a double-income couple with a newborn child can invest for their future goals of FIRE and real-estate investment.
Case study: how this double income recently married family can perform DIY goal-based investment planning

This article shows how a young just-married couple can invest for future goals using the Arthgyaan goal-based investing tool.
Case Study: How should couples in their 40s with a new baby plan their financial future?

Did you welcome a bundle of joy in your 40s? This article will discuss ways of planning the child’s (and your’s financial future)
Case study: how this double income single kid family can perform DIY goal-based investment planning

This article shows how a very typical salaried couple with one child can invest for future goals using the Arthgyaan goal-based investing tool.

Previous and next articles:

<p>This article describes a tweak that investors can implement to plan taxes more efficiently, given that non-equity funds will be taxed at slab rates after 1st April 2023.</p>

Tax Mutual Funds

How to invest in mutual funds which are taxed at slab rates from 1st April 2023

This article describes a tweak that investors can implement to plan taxes more efficiently, given that non-equity funds will be taxed at slab rates after 1st April 2023.

Published: 29 March 2023

5 MIN READ

<p>This article compares how the PPF has performed against the SENSEX since 1979 to help investors decide if they should invest a lump sum in PPF in April 2023.</p>

Choosing Investments

SENSEX vs PPF report card 2023: should you invest 1.5 lakhs in PPF in April?

This article compares how the PPF has performed against the SENSEX since 1979 to help investors decide if they should invest a lump sum in PPF in April 2023.

Published: 2 April 2023

5 MIN READ

Latest articles:

<p>This article shows the historical performance of this fund as an example of a long-running gilt fund to demonstrate the risk and return in a gilt fund.</p>

Mutual Funds Review

Mutual fund report card: Kotak Gilt Fund

This article shows the historical performance of this fund as an example of a long-running gilt fund to demonstrate the risk and return in a gilt fund.

Published: 7 June 2023

3 MIN READ

Mutual Funds

Gilt funds do not always go up in value. Should you invest in gilt funds?

This article explains if Indian investors should consider investing in gilt or government securities mutual funds for their goals.

Published: 4 June 2023

4 MIN READ

Topics you will like:

Asset Allocation (21) Basics (8) Behaviour (10) Budgeting (11) Calculator (16) Case Study (5) Children (12) Choosing Investments (35) FAQ (5) FIRE (13) Gold (6) Health Insurance (4) House Purchase (14) Insurance (14) International Investing (9) Life Stages (2) Loans (9) Market Movements (11) Mutual Funds (28) NPS (5) NRI (8) News (6) Pension (8) Portfolio Construction (42) Portfolio Review (24) Real Estate (4) Retirement (35) Review (12) Risk (6) Safe Withdrawal Rate (5) Set Goals (26) Step by step (10) Tax (25)

Next steps:

1. Email me with any questions.

2. Use our goal-based investing template to prepare a financial plan for yourself
OR
use this quick and fast online calculator to find out the SIP amount and asset allocation for your goals.

Don't forget to share this article on WhatsApp or Twitter or post this to Facebook.

Discuss this post with us via Facebook or get regular bite-sized updates on Twitter.