Introduction:
The Govt. of India introduced a new optional tax rate regime (u/s 115BAC) starting from F.Y 2020-21 for Individuals and HUF. Such regime offers lower tax rate with fewer exemptions and deductions. [Budget-2020]
In union budget 2023, the new tax regime has been made as a default one , and the taxpayer will have to select the old regime if they wish to use it.
Page Contents
New Tax Regime
There is no tax on the income of Rs. 7,00,000, this is completely wrong. But due to section 87A, the tax payable become Zero, that provide rebate maximum up to Rs. 25,000.
| Income (Rs.) | Tax Rate | Tax (Rs.) |
| Up to 3,00,000 | Nil | 0 |
| 3,00,001-6,00,000 | 5% | 15,000 |
| 6,00,001-9,00,000 | 10% | 15,000+30,000=45,000 |
| 9,00,001-12,00,000 | 15% | 45,000+45000=90,000 |
| 12,00,001-15,00,000 | 20% | 90,000+60,000=1,50,000 |
| Above 15,00,000 | 30% | 1,50,000+ ………… = |
In addition to the above(tabulated), health & education cess and surcharge (If Applicable) would also be payable.
Let’s understand with the help of below example
|
Taxable Income |
|
| Up to Rs. 7,00,000
Then tax would be Rs. 25,000 But Tax payable would be “0” (Sec.87A) |
More than Rs. 7,00,000
Then tax would be payable on all the income as rebate of Sec.87A is not available. |
| E.g If there is taxable income of Rs.7,00,001 then tax would be payable of Rs.25,000.10. | |
The new tax regime was introduced in Budget 2020, effective April 1, 2020. The new regime offers lower tax rates for higher incomes than the old tax regime. It allows you to lower your tax liability subject to certain conditions and is optional.
So, if you choose to calculate your taxes using the new tax regime, most of the deductions like HRA, LTA, 80C, and exemptions available under the Income Tax Act 1961 would not be available to you. However, following deductions and exemptions would be available under the NEW TAX REGIME-
- Standard deduction of 50,000/- from salary or pension.
- Employer’s contribution to the NPS for up to 10% of your salary under Section 80CCD (2) [ 14% in case of Central Govt employee]
- if house property is let out:
- Standard deduction of 30% of net rental income
- Home loan interest paid can be deducted from the rental income from the house property. However, loss from the House Property head cannot be set off from any other head of income.
- Conveyance allowance will be allowed to meet the expenditure on the conveyance to perform an official
- Allowances granted will be allowed to meet the cost of traveling on tour or on transfer to the
- Daily allowance granted for day-to-day ordinary expenses in case of absence from his / her normal place of duty.
Old Tax Regime:
| Income (Rs.) | Individuals (Age < 60
years) |
Resident Senior Citizens
(≥60 but <80 years) |
Resident Super Senior Citizens (80 years and
above) |
| Up to 2,50,000 | Nil | Nil | Nil |
| 2,50,001 to 3,00,000 | 5% | Nil | Nil |
| 3,00,001 to 5,00,000 | 5% | 5% | Nil |
| 5,00,001 to 10,00,000 | 20% | 20% | 20% |
| Above 10,00,000 | 30% | 30% | 30% |
Old Tax regime offers various deductions and exemptions to claims like Section 80C, HRA, LTA, and more.
Which Tax Regime is Better?
This decision to choose between new or old tax regime depends on several factors like: – Simplicity, Income level, deductions and exemptions.
- The new regime will be advantageous when total deductions are less than 5 lakhs.
- When total deductions exceed 75 lakhs, the old regime will be beneficial.
- When total deductions range from 5 lakhs to 3.75 lakhs: this is determined by your income level.
For e.g. Under the old tax regime, you can avail of a deduction of Rs 1.5 lakh under Section 80C and Rs 2 lakh under Section 24(b) on the interest amount for self-occupied property. This means a straight deduction of Rs.
3.5 lakh can be availed under the old tax regime, while the new tax regime does not offer such deductions and exemptions.
How many times can you switch b/w old and new regime?
Taxpayers can switch between the old and new tax regime every year at the time of filing their tax returns. However, once you opt for the new tax regime for a year, you cannot claim any tax benefits available in the old tax regime.
Also, for individuals with income from business and profession, the tax regime opted for in the previous tax returns also applies to the subsequent years.
In simple words,
Salaried individuals have the flexibility to switch between the new and old tax regimes multiple times within each financial year.
Individuals with income from business or profession can only make a one- time choice.
For instance, if an individual with business income switches from the old to the new regime in FY2023, they will not be eligible to switch again.
Once an individual with business income opts out of the new tax regime, they cannot opt back in for the new tax regime in the future.
How to Choose Old and New Tax Regime:
The choice between the old and new tax regimes should be based on careful consideration of deductions, exemptions, income level, and personal financial goals.
ITR-1(SAHAJ) now has the option to select the tax regime. For ITR-4 (SUGAM) – individuals with business or professional income, taxpayers will need to file form 10-IEA to opt out of the old tax regime.
Note: It is mandatory to submit Form 10-IEA online before the deadline prescribed for filing the income tax return (i.e., usually July 31st).
Previously, individuals had to fill out Form 10-IE to choose the new tax regime. However, Form 10-IE, which allowed individuals to opt into the new tax regime, has been discontinued.
This change aims to make the new tax regime the default setting, starting from the financial year 2023-24. Therefore, the new tax regime will automatically apply unless individuals take specific action to opt for the old regime.
Conclusion:
The decision to opt for the old or new tax regime depends on individual circumstances. If deductions are minimal or zero, the new tax regime may be preferable, while the old regime might offer more benefits for those with significant deductions.
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