Are you still undecided about which income tax regime (old or new) to choose? The Budget 2023 introduced a significant change: default adoption of the new tax regime. It aims to simplify tax filing and encourage more people to opt for the new regime, which offers lower tax rates but fewer deductions and exemptions. If you don’t choose either the old or new regime, your taxes will be calculated under the new regime by default. However, you can switch back to the old regime before the due date for filing your return.
The new income tax regime offers several benefits, including a simplified tax structure with lower rates, reduced tax liability, and increased disposable income for taxpayers. By eliminating various deductions and exemptions, it streamlines tax compliance, saving time and effort for taxpayers.
Here are 8 advantages of the new tax regime to taxpayers:
1)Lower Tax Rates
Taxpayers can benefit from lower tax rates under the new regime, resulting in reduced tax liability and higher disposable income.
“The government has been pushing the new tax regime by making it more attractive for taxpayers. The new tax regime provides the taxpayers with a substantially lower tax rate,” said Aarti Raote, Partner, Deloitte India.
2) Simplified Tax Structure
The new regime simplifies the tax structure by offering lower tax rates
-No tax would be levied for income up to ₹3 lakh
-Income between ₹3-6 lakh would be taxed at 5 per cent (tax rebate under Section 87A is available)
-Income between ₹6-9 lakh would be taxed at 10 per cent (tax rebate under Section 87A on income up to ₹7 lakh is available)
-Income between ₹9-12 lakh at 15 per cent
-Income between ₹12-15 lakh at 20 per cent
-Income of ₹15 lakh and above will be taxed at 30 per cent.
3)No Tax Deductions
The new regime eliminates the need to track and claim deductions, saving time and effort for taxpayers.
“Further, the taxpayers also do not have the hassle of collecting and providing details and evidence for expenditure and investments,” Aarti Raote
4) Basic exemption limit
“The basic exemption limit has been elevated from ₹2.5 lakh to ₹3 lakh. This increased exemption limit makes the novel tax regime more appealing. Note that the highest tax rate, i.e., 30%, will be imposed on income exceeding Rs15 lakh,” said Clear founder and CEO Archit Gupta
5) Changes in the Surcharge Rate
The implementation of the new tax regime leads to a reduction in the surcharge rate from 37% to 25%. This is applicable for individuals with income exceeding ₹5 Crores.
According to Gupta, this reduced surcharge rate is valid only for those taxpayers who choose the new tax regime and have an income exceeding ₹5 crore
6) Change in the Rebate Limit
The introduction of the new tax regime has increased the rebate limit. “As per the old tax regime, the applicable rebate limit is ₹12,500 for incomes up to Rs.5 lakhs. However, under the new tax regime, this rebate limit has increased to ₹25,000 if the taxable income is less than or equal to ₹7 lakh. Note that the Section 87A rebate is applicable under both income tax regimes. Then, the budget announcement increased the taxable limit to ₹7 lakhs from ₹5 lakh under the new tax regime,” said Archit Gupta.
7) Standard Deduction
Salaried individuals’ standard deduction under both the old and the new regime is ₹50,000.
8) Exemption on Leave Encashment
Under the new tax regime, you will obtain an exemption on leave encashment. “In Budget 2023, the exemption limit for leave encashment was raised 8 times i.e. from ₹3 lakh to ₹25 lakh for non-government employees. So, at retirement, the leave encashment amounting up to ₹25 lakhs is free from tax, as per Section 10(10AA),” explained Gupta.
Other Deductions under the new regime
Deduction from family pension income of Rs15,000 or 1/3rd of the pension (whichever is lower).
Deduction of the amount paid or deposited in the Agniveer Corpus Fund under Section 80CCH(2).
Disclaimer: The views and recommendations made above are those of individual analysts, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.
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Published: 20 Apr 2024, 11:52 AM IST