Taxation is complicated business. How it impacts you depends on who you are, what you earn, and how you spend. To that end, many will welcome the latest tax announcements. But others must be wondering what they need to do to catch a break. Let’s make sense of Wednesday’s announcements on income tax slabs.

No tax up to Rs 7.5 lk

The good news? Income up to Rs 7 lakh is now tax-free under the new tax regime under Section 115BAC. This regime is no longer ‘optional’. It will be the default system going forward. The new regime now also has a standard deduction of Rs 50,000.

Essentially, anyone earning Rs 7.5 lakh — Rs 62,500 a month — is now spared from income taxation under the new regime. To compare, 10 years ago, the tax on the same income was Rs 82,400.

Also, the new regime slabs have been rejigged and given much-needed expansions. But the top slab rate remains unchanged at 30 per cent on income over Rs 15 lakh.

Anyone earning between Rs 7.5 and Rs 15 lakh will find minor concessions in their tax burden. Second, those earning more than Rs 5 crore will see their surcharge reduce marginally from 37 per cent to 25 per cent.

Can you really move?

Taxpayers pick whichever regime charges lower taxes. A recent news report said that 7.5 crore tax assessments were filed this year.

Out of these, only around 5 lakh—less than 1 per cent — opted for the new regime. Various other surveys reveal taxpayers steadfastly holding on to the old regime.

They have deductions for home loans, provident fund, insurance payments, school fees or rent. With deductions, the old regimes requires them to pay lower taxes.

The latest budget enhances tax brackets in the new regime. This will sway fence sitters. But many are going to compare their options and are likely to determine they’re still better off in the old regime.

Having a home loan with its large deductions is a critical factor in this decision.

Or pay 2013 rates

Now, if you’re going to stick to the old regime, you must contend with tax slabs that have been frozen for a decade and out of sync with these inflationary times.

The last enhancements to the 20 per cent and 30 per cent slabs happened in 2013.

You pay 20 per cent tax on income above Rs 5 lakh and 30 per cent on income above Rs 10 lakh. If you earned Rs 12 lakh in 2013, you paid Rs 1.95 lakh in taxes.

On the same income today, the tax is Rs 1.79 lakh. But adjusted basis the Cost Inflation Index, the tax should have come down to Rs 1.30 lakh.

This implies excess taxes of Rs 4,111 per month at that income level. But at this juncture, if a tax calculator tells you that you’re still better off picking the old regime, then you don’t have a choice. You must go where the savings are. The new regime aims to simplify the tax code and reduce paperwork.

The enhanced brackets will encourage those earning up to Rs 7.5 lakh to adopt it. Everyone else needs to find a tax calculator and evaluate their options.

Adhil Shetty is CEO of BankBazaar.com