“Navigate the New Income Tax Regime for Salaried Employees with insights on regime selection, salient features, available deductions, tax calculator, rebate, and break-even analysis. Stay informed for effective tax planning.”
1. CBDT vide circular No. 04 dated 05 April 2023 clarified that the employer shall seek information from each of its employees regarding his intended tax regime and each such employee shall intimate the same to the employer.
The intimation is required for the purpose of TDS by the employer. It cannot be modified during the year. However, salaried employees have the flexibility to change the option at the time of filing the Income Tax Return.
The new tax regime has been selected as a default option for all taxpayers from FY 2023-24 onwards, and taxpayers who want to opt for the old tax regime will now have to specifically indicate this preference.
The employees are confused as to which regime; they should opt for. It becomes cumbersome for them to pick the best-suited tax regime. Let us try to help salaried employees to take a decision. The article covers all the relevant provisions/ features of the new Tax Regime from the perspective of salaried employees.
2. Salient Features of New Tax Regime The introduction of the new tax regime was made vide Finance Act, 2020 applicable from 1st April 2020 under section 115BAC for individual and Hindu Undivided Family (HUF). The compulsory requirement of foregoing specified deductions for opting for the new regime has somewhat, made the said new regime unpopular and with very few takers. A wide range of reliefs have been introduced to the new tax regime vide Finance Act 2023 to make it more attractive and shift the direction towards this regime.
2.1 The new tax regime has rationalized the scope of taxation with five tax slab rates ranging from 0% to 30% with the basic exemption till Rs. 3 lakhs exempt from tax and the highest tax rate of 30% applicable on income above Rs. 15 lakhs.
2.2 The new tax regime has the benefit of the standard deduction and there is a full rebate provided to individuals earning up to Rs. 7 lakhs annually
2.3 Deductions & Exemptions to be Foregone The simplified new tax rate regime requires specified tax deductions and exemptions to be forgone. Some of the popular tax exemptions/deductions which are not allowed under the new tax regime include (a) Leave Travel Concession(b) House Rent Allowance (c) Children’s Education Allowance (d) Deduction for Professional Tax(e) Interest on Housing Loan (f) Perquisites & Allowances including food coupons (Sodexo etc.) (g) Deduction for Specified Investment or expenses under Chapter VI A such as – deductions u/s 80C towards contribution to PF/PPF, LIC Premium, repayment of principal on housing loan, etc.(h) Other deductions u/s 80 towards medical insurance premium, interest on education loan, interest on saving bank interest, employees contribution towards NPS etc.
2.4 Available Deductions & Exemptions (a)The new tax regime permits a standard deduction of Rs. 50,000 for salaried persons and a deduction for a family pension being lower of Rs. 15,000 or 1/3rd of the pension. (b)Transport Allowance in case of an especially abled person. (c) Interest on a home loan on Let out Property (d) Deduction for employer’s contribution to NPS Account [(Sec 80CCD (2)) (e) Exemption on Leave encashment, Gratuity & Voluntary Retirement. (f)Conveyance Allowances/reimbursement towards the use of a vehicle for official purposes.
3. Tax Slab: Tax slabs in the new regime have also been relaxed a bit now and these new relaxed slab rates are: up to Rs. 3,00,000 – Nil Tax; 3,00,001 to 6,00,000 – 5%; 6,00,001 to 9,00,000 – 10%; 9,00,001 to 12,00,000 – 15%; 12,00,001 to 15,00,000 – 20% and above 15,00,000 – 30%.”
4. Income Tax Calculator: The Income tax department has launched a new tax calculator to help taxpayers decide which income tax regime will be better for the assessee for the upcoming financial year 2023-24.
The new calculator has been made available on the income tax department’s website— https://incometaxindia.gov.in/Pages/tools/115bac-tax-calculator-finance-bill-2023.aspx.
It simplifies the process of tax calculation and helps taxpayers understand the difference between taxable income and tax liability under the two tax systems.
5. Tax Rebate The Rebate U/S 87A provides benefit on tax payment to a Resident Individual. The condition to avail of the benefit is that total taxable income shall not exceed the threshold limit of Rs 7,00,000. The rebate is hiked to Rs 7 lakh from Rs 5 lakh under the new tax regime. Thus, individuals having an income up to Rs 7 lakh and opting for the new tax regime do not have to pay any taxes.
5.1 An individual having total taxable income up to Rs. 7 lakhs will get the tax benefit of Rs 25000 or the amount of tax payable (whichever is lower).
5.2 Senior citizens above 60 years and up to 80 years of age are eligible to claim a rebate under Section 87A but super senior citizens with age above 80 years are not eligible to claim the rebate
5.3 The income tax rebate under section 87A will be automatically claimed at the time of filing the Income Tax Return
5.4 The rebate applies to the total tax amount before implying a 4% health and education cess
6. Calculation of Tax Rebate U/S 87A: Calculate Gross Total Income by adding up income from all the sources, like salary, house rent, capital gains, income from other sources, etc. Now from gross total income, apply the standard deductions & other applicable deductions allowed under the new regime of Income tax i.e. employer’s contribution for NPS, etc. The amount after claiming all the deductions becomes net taxable income. If net taxable income is less than or equal to Rs 7 lakh, (applicable from F.Y 23-24), the individual is eligible to claim a rebate under Section 87A
7. Illustration: The Gross Total Income of Mr. Bombe is Rs 7,50,000. The rebate on his income will be calculated as follows:
| TAX LIABILITY ON GROSS TOTAL INCOME OF RS 7.5 LAKHS | ||
| Sl. | Particulars | Amount (Rs.) |
| (a) | Gross Total Income | 7,50,000 |
| (b) | Less: Standard Deduction | 50,000 |
| (c ) | Taxable Income | 7,00,000 |
| (d) | Tax on Income up to Rs 3 Lakhs | NIL |
| (e) | Tax on Income of Rs 3 Lakhs to 6 Lakhs @ 5% | 15,000 |
| (f) | Tax on Income of Rs 6 Lakhs to 9 Lakhs @ 10% | 10,000 |
| (g) | Total Tax Liability | 25,000 |
| (h) | Less: Rebate U/S 87A | 25,000 |
| (i) | Net Tax Payable | 0 (Zero) |
8. Marginal Relief: The rebate u/s 87A is available on taxable income of Rs 7 Lakhs. However, those earning even marginally higher than the threshold were required to pay tax on Rs 7 lakh slabs as well.
8.1 For instance, on a taxable income of Rs 7 lakh per annum, Mr. Bombe is not required to pay any income tax due to the full rebate. But in case of a slight increase of Rs 5000 in the taxable income, the rebate under the section is not allowed and tax will be computed on Rs. 705000 as per slab rate. Income tax on Rs 7,05,000 at the slab rate is Rs 25,500. This meant that despite earning just Rs 5000 over the rebate limit, Mr. Bombe would have been saddled with over Rs 25,500 as tax liability.
8.2 To provide relief to such taxpayers, the government has amended the Finance Bill 2023 and introduced the concept of marginal relief limiting the tax outgo to the incremental taxable income over Rs 7 lakh per year.
8.3 This measure will benefit individuals with taxable income between Rs 7.05 lakh and Rs 7.28 lakh. To calculate tax liability, a standard deduction of Rs 50,000 is first subtracted, and then the tax liability is calculated based on the slab. The net tax liability will now be the lower of the tax calculated as per the slab or the amount by which taxable income exceeds Rs 7 lakh.
Amount in Rs.
| Sl | Taxable Income after standard deduction of Rs 50000 | Tax Liability (as per Tax Slab) | Amount by which taxable income exceeds Rs. 7 lakhs | Net tax liability [Lower of coloum (3) or (4)] | Marginal Relief Coloum (3) -(5) |
| (1) | (2) | (3) | (4) | (5) | (6) |
| (a) | 7,05,000 | 25,500 | 5,000 | 5,000 | 20,500 |
| (b) | 7,10,000 | 26,000 | 10,000 | 10,000 | 16,000 |
| (c ) | 7,15,000 | 26,500 | 15,000 | 15,000 | 11,500 |
| (d) | 7,20,000 | 27,000 | 20,000 | 20,000 | 7,000 |
| (e ) | 7,25,000 | 27,500 | 25,000 | 25,000 | 2,500 |
| (f) | 7,27,778 | 27,778 | 27,778 | 27,778 | 0 |
The tax liability on a taxable income of Rs 7.05 lakh would be only Rs 5,000, instead of Rs 25,500. This benefit breaks even on taxable income of Rs 7.27 lakhs.
9. Selection of Tax regime: The selection of tax regime depends on the quantum of income and deductions and allowances one can claim. There is no thumb rule applied to all. One has to evaluate and compare the tax liability under both regimes and then decide on which tax regime to opt for. The eligible deductions, sources, and quantum of income are different for every individual.
10. Break-Even Point The break-even point here refers to the maximum deduction one must claim in the old tax regime so that the income tax payable in both regimes is the same. This can help a person decide which tax regime will be better if they are unable to meet a certain level of deduction.
Amount in Rs.
| Sl | Gross Income | Maximum Exemptions & Deductions | Standard Deduction (available in both the regime) | Net Exemptions & Deductions required for Opting old regime |
| (a) | 20,00,000 | 4,25,000 | 50,000 | 3,75,000 |
| (b) | 15,00,000 | 4,08,332 | 50,000 | 3,58,332 |
| (c ) | 12,50,000 | 3,62,500 | 50,000 | 3,12,500 |
| (d) | 10,00,000 | 3,00,000 | 50,000 | 2,50,000 |
| (e) | 7,50,000 | 2,50,000 | 50,000 | 2,00,000 |
Conclusion: Thus, the employee shall analyze the investments or expenditures, he is likely to be made in the financial year 2023-24 vis-a-vis his estimated Gross Total Income for the period before giving intent to the employer for opting old regime. Analysis of the Gross Income on which maximum deduction is required to be claimed to remain tax neutral in both the income tax regimes.
Disclaimer: The article is for educational purposes only.
The author can be approached at caanitabhadra@gmail.com
Author Bio
I notice that the status for senior citizen is dispensed with in new regime, but not specifically mentioned in the article.
My CTC is 9 Lakh Per annum, Rebate U/S 87A is applicable for me or not
My son has joined DNB-SS in a hospital.
He is getting monthly stipend of Rs.70000/- as per NBE guidelines which is considered/interpreted as scholarship and non taxable.
But the hospital has deducted TDS and shown it as salary in form 16.
Can you advise whether this Tds can be claimed through it return and how ?
my gross income is 1026000 and deduction/exemption is aprx 200000. what will be my tax liability under new tax regime.Regards
Is Tax relief of self PWD 75000 and Dependence PWD 75000 available in new tax regime .
I hv a salary employee under PSU, My annual income is below 6lakh. i declared new tax regime. But in my salary slip tax was deducted in April & may also. i hv a query that if 7lakhs income is not taxable under new tax regime than, why tax deducted from my salary?
The tax will not be deducted if your salary is below exemption limit of Rs 3,00,000.
The employer will deduct tax at source as the moment your salary exceeds Rs 7,00,000 , the tax is required to be deducted & deposited as per normal slab rate.
However, you are eligible to get rebate under section 87A and the net tax liability will be NIL. ( if taxable salary in a FY 2023-24 is below 7,00,000)
can you give a break up of Rs. 4,25000.00 maximum exemptions and deductions.
Rs 4,25,000 can be combination of Allowances & Deductions available in old regime but has to forego in new regime .
For example (150000+200000+50000+25000)
Sec 80C 1,50000, Interest on housing Loan – 200000,NPS -50000, Mediclaim – 25000.
the deduction of home loan interest 200000 is available in new tax regime
what are the other deductions available in new regime
Home loan interest of Rs 2,00,000/- for self occupied property is not available in new regime
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