New Tax Regime (NTR) from Financial Year (FY) 2023-24 (Amendments w.e.f. Assessment Year (AY) 2024-25)
One can save tax in the new tax regime also, if been aware and well knowing the allowable rebates, exemptions and deductions as per the I. T. Act, 1961.
Government of India, from FY 2023-24, had made the NTR as a Default Tax Regime (DTR), whereby, if taxpayer will not opt for old tax regime (OTR) specifically, then automatically will come within the preview of the NTR. In this NTR, the slabs of income had been changed & the tax-rate @25% will also be no longer in the existence, with the objective to simplify the tax-collection process and for reducing the paper work.
Union Budget 2023, announced that certain exemptions and deductions which is available under OTR, will be also applicable under NTR as well from the AY 2024-25. Therefore, to avail a maximum tax advantage in the NTR, the taxpayers must be aware of the enumerated exemptions and deductions:
1. Standard Deduction (SD) u/s 16(ia): SD of Rs. 50,000 can be availed by all salaried taxpayers, under the head Income from Salary u/s 16(ia) of the I. T. Act, 1961, in the NTR also from the FY 2023-24, which was not allowed under the NTR till the FY 2022-23.
The Union Budget 2023 also widens the tax benefits for salaried person earning Rs.15.50 Lakhs or more can gain Rs. 52,500 as a SD under this section.
2. Standard Deduction (SD) u/s 24a & interest on home loan u/s24b: An owner of the house, if earning an income from the rent by providing his/her house on rent to the tenant, then the owner is entitled to claim a SD @30% of the Net Annual Value (NAV) u/s 24a and as well as interest on home loan u/s 24b of the I. T. Act, 1961, under the head Income from House Property (HP) from AY 2024-25 under NTR as well. Moreover, if the municipal tax is paid by the owner, on his rented house property, then it will be also allowed from the FY 2023-24 under NTR.
3. Increased Rebate u/s 87A: A resident individual is entitled for the maximum rebate of tax of Rs.12,500 (before adding H & EC @4%) in the NTR as well (along with the OTR) where taxable income doesn’t exceed Rs. 5.0 Lakhs up to the FY 2022-23. This will be maximum of Rs.25,000 (before adding H & EC @4%), where taxable income does not exceed Rs. 7.0 Lakhs, under section 87A of the I. T. Act, 1961 from AY 2024-25 under NTR. Hence, a salaried taxpayer will not be a liable for paying tax up to the income of Rs. 7.50 Lakhs by claiming the standard deduction under the NTR from AY 2024-25. But importantly, under OTR, it will continue with a maximum rebate in this section of Rs. 12,500 (before adding H & EC @4%) where the taxable incomes do not exceed Rs. 5.0 Lakhs.
4. Change in the Income Tax Slab and elimination of the Tax Rate of @25%, under NTR from AY 2024-25: The below enumerated income-slab and rate of tax is proposed under the NTR from the AY 2024-25. Accordingly, there will be the tax saving in the hands of taxpayer by the amount of Rs. 37,500 (i.e., Rs. 1,87,500 – Rs. 1,50,000) (before H & EC @4%) up to the income of Rs. 15.0 Lakhs.
| Existing income-slab under NTR | Rate (%) | Tax (Rs.) | New income-slab under NTR | Rate (%) | Tax (Rs.) |
| First Rs. 2,50,000 | Nil | Nil | First Rs. 3,00,000 | Nil | Nil |
| Next Rs. 2,50,001 to Rs. 5,00,000 | 5 | 12,500 | Next Rs. 3,00,001 to Rs. 6,00,000 | 5 | 15,000 |
| Next Rs. 5,00,001 to Rs. 7,50,000 | 10 | 25,000 | Next Rs. 6,00,001 to Rs. 9,00,000 | 10 | 30,000 |
| Next Rs. 7,50,001 to Rs. 10,00,000 | 15 | 37,500 | Next Rs. 9,00,001 to Rs. 12,00,000 | 15 | 45,000 |
| Next Rs. 10,00,001 to Rs. 12,50,000 | 20 | 50,000 | Next Rs. 12,00,001 to Rs. 15,00,000 | 20 | 60,000 |
| Next Rs. 12,50,001 to Rs. 15,00,000 | 25 | 62,500 | Above Rs. 15,00,000 | 30 | |
| Above Rs. 15,00,000 | 30 | ||||
| Total amount of Tax up to income of Rs. 15,00,000 (before H & EC @4%) | 1,87,500 | Total amount of Tax up to income of Rs. 15,00,000 (before H & EC @4%) | 1,50,000 |
5. Employer contribution in the National Pension Scheme (NPS): In the NTR, neither the advantage of investment up to Rs.1.50 Lakhs u/s 80C nor additional advantage of Rs. 50,000 u/s 80CCD(1B) is available. Moreover, employer contribution in NPS, deduction under section 80CCD(2) is available in the NTR, up to a maximum of 10% on the Basic Salary and DA (if employment terms provide) of the employee, which is contributed by the employer. For the Government employees (Central & State) this limit is 14%.
6. Employer contribution in Employees Provident Fund (EPF): Contribution made by employer in EPF is normally done @12% of the basic salary. On this contribution, the salaried taxpayers are entitled for exemption under the NTR also from the FY 2023-24. But, for availing this exemption, the annual retirement benefit provided by the employer should not be more than Rs.7.50 Lakhs.
7. Maturity amount of Public Provident Fund (PPF) and Sukanya Samrddhi Yojana (SSY): Maturity amount receivable on Public Provident Fund (PPF) and Sukanya Samrddhi Yojana (SSY) will be not taxable from the FY 2023-24 under the NTR also, although the benefit of tax exemption under section 80C up to Rs.1.50 Lakhs is available on investment made on PPF and SSY under the OTR only.
Conclusion: A taxpayer is required to well evaluate and analyze, before coming up with any decision, in regard for the opting any tax regime, either old or new, by well considering the future financial needs, requirements or goals, because on the basis of that only individual makes their decision on saving and investments. So, before coming up with the decision regarding opting between the both tax regimes, a taxpayer must consider the tax benefit therefrom as the short-term goal, but should also well consider the saving and investments strategies as per the future financial ambition too as a long-term objective.
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