“April Deadline: Navigate the choice between new and old income tax regimes for the financial year 2023-24. Understand changes, exemptions, and plan your tax strategy wisely. Expert insights from a Chartered Accountant with two decades of experience. Source: Finance Act 2023-24, Tax Planning, Indian Income Tax Rules.”
is the start of a new financial year and the government has made changes to the income tax slabs under the new tax regime to make it more attractive. It’s important for salaried individuals to do their tax planning this month because the tax regime they choose will determine how much tax is deducted from their salary income. Not doing proper tax planning will lead to higher tax deductions and a lower take-home pay. From this financial year, the new tax regime has become the default option, so if an individual doesn’t inform their employer which tax regime they’ve chosen, TDS will be deducted based on the new income tax slabs. A salaried individual can choose between old and new tax regime every financial year, but once chosen, it can’t be changed during the year. The employer will continue to deduct taxes based on the option communicated in April, but another tax regime can be chosen when filling the income tax return.
When filing your income tax return, it’s important to know that some tax exemptions can only be claimed through your employer, such as leave travel allowance. However, exemptions like house rent allowance can be claimed at the time of filing your tax return.
To decide between the old and new tax regimes, you should calculate your net taxable income under the old regime after subtracting eligible deductions and exemptions, and compare the tax liability with the new regime. Choose the option with the lower tax liability and inform your employer to deduct TDS accordingly.
If your income changes during the year or you receive other sources of income, it’s important to recalculate and compare the tax liability under both regimes to ensure you are choosing the most favourable option.
The government has made some changes to the income tax rules to encourage more people to opt for the new tax regime. Here are the key changes:
New income tax slabs: The number of income tax slabs has been reduced from six to five. This means that the income tax rates have been simplified under the new tax regime.
Hike in basic exemption limit: The basic exemption limit has been increased from Rs 2.5 lakh to Rs 3 lakh under the new tax regime. This means that individuals can earn up to Rs 3 lakh without having to pay any income tax.
Standard deduction: Salaried and pensioners, including family pensioners, can claim a standard deduction under the new tax regime. The amount of standard deduction for individuals is Rs 50,000, and for family pensioners, it is Rs 15,000.
Under the new tax regime, an individual can enjoy zero tax liability if their taxable income does not exceed Rs 7 lakh in a financial year. Additionally, an individual with a taxable income of up to Rs 7.5 lakh can claim a standard deduction of Rs 50,000 to bring down their taxable income to Rs 7 lakh and avoid paying any taxes. Also Marginal Tax Relief is also available in case of New Tax Regime. However, even if an individual has zero tax liability, they are still required to file an income tax return if their taxable income exceeds Rs 3 lakh in a financial year. The government has made the new tax regime the default option, meaning that taxes will be deducted from an employee’s salary based on the new tax regime unless they specifically choose the old tax regime. Furthermore, the surcharge rate for high-income earners with taxable incomes above Rs 5 crore has been reduced to 25% from 37%. No changes have been made to the old tax regime, so individuals who choose to use it will continue to calculate their income tax as they have done in previous years.
To summarize, the Indian government has announced changes to the income tax regime for the financial year 2023-24. The new tax regime has reduced the number of tax slabs to five and increased the basic exemption limit to Rs 3 lakh. An individual can claim a standard deduction of Rs 50,000 under the new tax regime and pay zero tax if their taxable income is up to Rs 7 lakh. The new tax regime is now the default option, and an individual opting for the old tax regime will continue to calculate income tax as per previous years. The surcharge rate for high-income earners has been reduced to 25% from 37%. It is important to note that even if an individual pays zero tax, they are still required to file an income tax return if their taxable income exceeds Rs 3 lakh.
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The author is a Chartered Accountant with 2 decades of experience into Accounting, Taxation, Auditing, Risk & Compliance, Credit Controls, Due diligence. Currently, the author is the founder and managing partner at RRL Global services.
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