Introduction
In India, the tax system is structured to be progressive, meaning that as individuals earn higher incomes, they are subject to higher tax rates. This progression is reflected in the income tax slabs, which categorize income into different brackets, each with its corresponding tax rate. These slabs are determined based on various factors, including an individual’s residential status, total income, taxpayer category, and age.
Contents
- Budget 2024 Updates
- Income Tax Slabs as per New Tax Regime for FY 2023-24 (AY 2024-25)
- Brief about New Tax Regime
- Comparing the Tax Rates of Old Tax Regime and New Tax Regime
- What are the Exemptions/Deductions unavailable under the new tax regime?
- What are the Exemptions/Deductions available under the new tax regime?
- Considerations to be taken care of before opting for any scheme
- FAQs
Budget 2024 Updates
In the 2024 interim budget, no changes were made to taxation for FY 2024-25. Finance Minister Nirmala Sitharaman retained existing tax rates for direct and indirect taxes, i.e., the changes announced for FY 2023-24 will be continued. A full budget is anticipated in July after the new government is formed post Lok Sabha elections.
Income Tax Slabs as per New Tax Regime for FY 2023-24 (AY 2024-25)
As per the Union Budget 2023, a few key changes have been introduced under the new tax regime. These changes will be applicable from 1 April 2023. The slab structure has been revised:-
Income Tax Slab Rate for New Tax Regime
| Range of Income | Tax Rate |
| Upto 3,00,000 | Nil |
| 3,00,000-6,00,000 | 5% |
| 6,00,000-9,00,000 | 10% |
| 9,00,000-12,00,000 | 15% |
| 12,00,000-15,00,000 | 20% |
| Above 15,00,000 | 30% |
Income Tax Slab Rate for Old Tax Regime
| Range of Income | Tax Rate |
| Up to 2,50,000 | Nil |
| 2,50,000-5,00,000 | 5% |
| 5,00,000-10,00,000 | 20% |
| Above 10,00,000 | 30% |
New Tax Regime
If you choose to calculate your taxes using the new tax regime, most of the deductions and exemptions available under the Income Tax Act 1961 would not be available to you. However, with the budget 2023, the government offered a few key changes in the new tax regime to make it more attractive:-
- The new income tax regime will be set as the default option. The basic exemption limit has been raised to Rs 3 lakh from Rs 2.5 lakh to make the new tax regime more attractive. Also, the highest tax rate of 30% will be levied above Rs 15 lakh income.
- In the budget 2023-24 announcement, the rebate under Section 87A has been hiked to Rs. 25000 for taxable income up to Rs. 7 lakhs under the new tax regime.
- The proposal to introduce the standard deduction in the new tax regime has been shared. As per this salaried class, the pensioners, including family pensioners, will benefit from a standard deduction of Rs. 50,000/-
- Also, the exemption of a family pension of Rs. 15,000 has been introduced under the new tax regime.
- Reduction in the surcharge on annual income above Rs 5 crore from 37% to 25% under the new regime. Currently, the highest tax rate is 42.74%, which would slash the maximum tax rate to 39% after this reduction.
- The limit of Rs. 3 lakh for tax exemption on leave encashment on non-government salaried employees has been raised to Rs. 25 lakh.
Comparing the Tax Rates of Old Tax Regime and New Tax Regime:
| Income Tax Slab | Old Tax Regime FY 2022-23 (AY 2023-24) and FY 2023-24 (AY 2024-25) | New tax Regime (Before budget 2023) (until 31st March 2023) | New Tax Regime (After Budget 2023) (Applicable from 1st April 2023) |
| ₹0 – ₹2,50,000 | – | – | – |
| ₹2,50,001 – ₹3,00,000 | 5% | 5% | – |
| ₹3,00,001 – ₹5,00,000 | 5% | 5% | 5% |
| ₹5,00,001 – ₹6,00,000 | 20% | 10% | 5% |
| ₹6,00,001 – ₹7,50,000 | 20% | 10% | 10% |
| ₹7,50,001 – ₹9,00,000 | 20% | 15% | 10% |
| ₹9,00,001 – ₹10,00,000 | 20% | 15% | 15% |
| ₹10,00,001 – ₹12,00,000 | 30% | 20% | 15% |
| ₹12,00,001 – ₹12,50,000 | 30% | 20% | 20% |
| ₹12,50,001 – ₹15,00,000 | 30% | 25% | 20% |
| More than ₹15,00,000 | 30% | 30% | 30% |
What are the Exemptions/Deductions unavailable under the new tax regime?
The 2020 budget has removed majority of the exemptions available under the new regime. The following exemptions and deductions are some of the most important ones which would not be available if the new tax slab is chosen for tax calculation –
- House Rent Allowanceunder Section 10 (13A)
- Leave Travel Allowance under Section 10(5)
- Allowances under Section 10(14)
- Food coupons and other tax-free allowances and perquisites
- Deductions under Chapter VI A of the Income Tax Act like Section 80C, 80D, 80TTA, etc.
- Deduction for home loan interest paid for self-owned house property under Sections 24 (b) and Section 80EEA
What Exemptions/Deductions are Available Under the New Tax Regime?
The following deductions and exemptions would be available under the new tax regime –
- Employer’s contribution to the NPS for up to 10% of your salary under Section 80CCD (2) [ 14% in case of Central Govt employee]
- Standard deduction of 30% of net rental income if house property is let out.
- Home loan interest paid can be deducted from the rental income from the house property. However, loss from the House Property head can not be set off from any other head of income.
- Transport allowance exemption will be available to Divyang employees to meet the day-to-day travel expenses from the workplace to home.
- Conveyance allowance will be allowed to meet the expenditure on the conveyance to perform an official duty.
- Allowances granted will be allowed to meet the cost of traveling on tour or on transfer to the employees.
- Daily allowance granted for day-to-day ordinary expenses in case of absence from his / her normal place of duty.
Considerations to be taken care of before opting for any scheme.
The decision to opt for the new tax regime in India warrants careful consideration of its benefits and drawbacks. Understanding the implications on your income, savings, and investments is paramount. Here are essential points to weigh before making the switch:
- Tax Filing Simplicity: Transitioning to the new regime offers a streamlined tax filing process by eliminating complex deductions and exemptions, thus saving time and reducing administrative burden.
- Lower Tax Rates: For individuals earning up to Rs. 7 lakhs, the new regime often entails lower tax rates, resulting in augmented disposable income and potentially improved financial flexibility.
- Tax Rebate Eligibility: Under the new regime, individuals with incomes up to Rs. 7 lakhs qualify for a complete tax rebate, effectively zeroing their tax liability, which can significantly benefit lower-income earners.
- Enhanced Liquidity: With the elimination of tax-saving investments, opting for the new regime can unlock liquidity, allowing for greater financial maneuverability to allocate funds towards diverse financial objectives.
- Limitations on Deductions and Exemptions: One must acknowledge the forfeiture of various deductions and exemptions, such as HRA, LTA, and medical insurance, potentially leading to a higher taxable income.
- Reduced Planning Flexibility: The absence of deductions curtails the strategic management of tax liabilities through investments and expenses, limiting the scope for tax optimization.
- Higher Tax Rates for High Earners: Individuals earning above Rs. 10 lakhs may face higher tax rates under the new regime, particularly with surcharges applicable on incomes surpassing Rs. 5 crores.
- Constrained Options for Long-Term Investors: Long-term wealth creation strategies reliant on tax-saving instruments may not align well with the new regime, as the benefits of such instruments are forgone.
Additional Considerations:
- Flexibility to switch between the old and new regimes annually at the time of tax return filing provides an opportunity to reassess tax strategies.
- Utilize tax calculators to conduct a thorough comparison of tax liabilities under both regimes.
- Factor in future income projections and investment plans to determine the regime best suited to your financial objectives.
Conclusion
The decision to opt for the new tax regime necessitates a nuanced understanding of its implications on tax obligations and financial planning. By carefully evaluating the benefits and drawbacks outlined above, individuals can make informed decisions aligned with their financial goals and circumstances.
Frequently Asked Questions about the New Income Tax Regime
Q: Can I change the income tax regime applicable every year?
A: The selection of the tax regime is flexible for salaried taxpayers, allowing for annual changes. However, this flexibility does not extend to individuals or Hindu Undivided Families (HUFs) with business income.
Q: What are the deductions and exemptions available under the new income tax regime?
A: The new income tax structure, introduced in the Budget 2020, offers reduced tax rates but requires taxpayers to forgo certain deductions and exemptions available under the Income Tax Act.
Q: Is rebate u/s 87A available under the new income tax structure?
A: Yes, the rebate under section 87A, amounting to Rs. 12,500, is available under the new income tax regime introduced in Budget 2020. Additionally, as per the Budget 2023 announcement, the rebate has been increased to Rs. 25,000 for taxable income up to Rs. 7 lakhs, applicable for FY 2023-24.
Q: Is a surcharge applicable under the new tax regime for Individuals or HUF under income tax?
A: Yes, individuals or HUFs under the new tax regime are subject to surcharges. While the surcharge rates remained unchanged for FY 2022-23 compared to FY 2021-22, the highest surcharge rate was reduced to 25% for FY 2023-24, as per the Budget 2023.
Q: Is health and education cess applicable under the new tax regime?
A: Yes, a health and education cess of 4% applies under the new income tax regime.
Q: How much tax is free?
A: Individuals opting for the new tax regime with taxable income up to Rs. 7 lakhs are exempt from paying taxes, as per the Budget 2023 update. Previously, this tax rebate was available for taxable income up to Rs. 5 lakhs.