New Tax Regime under Income Tax Act
The Budget 2020 introduced a new tax regime under section 115BAC, offering individuals and Hindu Undivided Families (HUFs) the choice to pay income tax at reduced rates with fewer exemptions and deductions. This new tax regime has been effective since the Financial Year 2020-21 (Assessment Year 2021-22).
For the upcoming Assessment Year 2024-25, individuals and HUFs are required to pay taxes under the new tax regime by default, unless they actively choose to opt for the old regime while filing their income tax return before the due date.
Previously, taxpayers selecting the new tax regime under section 115BAC had to submit Form 10IE with their Income Tax Returns (ITRs). However, with the new tax regime becoming the default option, Form 10IE has now been withdrawn.
Under the revamped tax regime, individuals and HUFs can benefit from significantly lower tax rates. It’s important to note that various exemptions and deductions, except for the standard deduction of Rs. 50,000 from salary and Rs. 15,000 from family pension, are not available in this new regime.
Exemptions and Deductions available under the New Regime
Following are the various exemptions and deductions available under the new tax regime, allowing you to optimize your tax savings and financial planning.
- Transport Allowances for Specially-Abled Individuals: You can claim tax exemption on transport allowances if you are a specially-abled person.
- Conveyance Allowance: Receive conveyance allowance for meeting travel expenses related to employment? You can claim this under the new tax regime.
- Compensation for Travel Expenses: Any compensation received for travel during tours or transfers is eligible for exemption.
- Daily Allowance for Work Travel: Claim daily allowance for ordinary expenses incurred due to absence from your regular workplace.
- Official Perquisites: Enjoy exemptions on perquisites received for official purposes.
- Voluntary Retirement Benefits: Exemptions under Section 10(10C) for voluntary retirement, gratuity under Section 10(10), and leave encashment under Section 10(10AA).
- Interest on Home Loan for Let-Out Property: If you have a let-out property, the interest on the home loan is deductible under Section 24.
- Gifts Up to Rs. 50,000: Receive gifts? You can enjoy tax exemption on gifts up to Rs. 50,000.
- Employer’s Contribution to NPS Account: Deduct the amount contributed by your employer to your NPS account under Section 80CCD(2).
- Additional Employee Cost Deduction: Benefit from deductions under Section 80JJA for additional employee costs.
- Standard Deduction: Budget 2023 introduced a standard deduction of Rs. 50,000 applicable from FY 2023-24, providing further relief.
- Family Pension Income Deduction: Introduced under Section 57(iia) by Budget 2023, deductions for family pension income.
- Contribution to Agniveer Corpus Fund: Enjoy deductions under Section 80CCH(2) for amounts paid or deposited in the Agniveer Corpus Fund.
Provisions of Opting In & Opting Out the Tax Regime
Following are the provisions for choosing between the old and new tax regimes, ensuring you make the right decision for your financial planning.
(i) For Salaried Taxpayers:
You can choose to opt for the old tax regime, now that the new regime is the default option starting from FY 2023-24. Inform your employer of your choice at the beginning of the financial year. However, if you haven’t made a choice, your employer will deduct tax (TDS) under the default new tax regime. But you have the flexibility to change your choice when filing your income tax return in July 2024.
There’s no restriction on switching between the new and old tax regimes. You can choose the new tax regime in one year and switch back to the old regime in another year as per your financial needs.
(ii) For Non-Salaried Taxpayers:
Non-salaried taxpayers, including those with income from business or profession, must choose the new regime when filing their tax return. Unlike salaried taxpayers, non-salaried individuals do not need to declare or intimate their choice during the year. Once a non-salaried taxpayer opts out of the new tax regime, they cannot opt back in for the new tax regime in the future.
It’s crucial for non-salaried taxpayers to carefully consider their choice, as it is a one-time decision regarding the new tax regime.
Tax Slab & Rates under New Tax Regime vs Old Tax Regime for FY 2023-24
|
New Tax Regime |
Old Tax Regime |
||
| Income Slabs | Tax Rate | Income Slabs | Tax rate |
| Up-to Rs 3 lakh | Nil | Up-to Rs 2.5 Lakh | NIL |
| Above Rs 3 lakh to Rs 6 lakh | 5% | Above Rs 2.5 lakh to Rs 5 lakh | 5% |
| Above Rs 6 lakh to Rs 9 lakh | 10% | Above Rs 5 lakh to Rs 10 lakh | 20% |
| Above Rs 9 lakh to Rs 12 lakh | 15% | Above Rs 10 lakh | 30% |
| Above Rs 12 lakh to Rs 15 lakh | 20% | ||
| Above Rs 15 lakh | 30% | ||
Benefits of Opting for the New Tax Regime
Following are the benefits of choosing the new tax regime, designed to simplify tax planning and offer enhanced benefits for taxpayers:
(i) Simplified Tax Planning:
With the new tax regime, taxpayers no longer need to maintain records of travel tickets and rent receipts. These changes are aimed at streamlining tax planning processes, making it easier for individuals to manage their taxes efficiently.
(ii) Increased Basic Exemption Limit:
The new tax regime raises the basic exemption limit from ₹2.5 lakhs to ₹3 lakhs for the Financial Year 2023-24. This significant increase in the exemption threshold makes the new tax regime more attractive to taxpayers.
(iii) Reduction in Surcharge Rate:
Individuals with income exceeding ₹5 Crores benefit from a reduced surcharge rate under the new tax regime. The surcharge rate has been decreased from 37% to 25%, providing tax relief for high-income earners who opt for the new regime.
(iv) Enhanced Rebate Limit:
Another advantage of the new tax regime is the increased rebate limit. Taxpayers with incomes up to ₹7 lakhs now have an applicable rebate limit of ₹25,000, offering additional tax savings opportunities.
Conclusion
Individuals earning between Rs. 5 lakh to Rs. 10 lakh annually can benefit from the new tax regime by opting for lower deductions, taking advantage of the simplified tax structure and higher basic exemption limit. On the other hand, those falling into higher income tax brackets, with incomes exceeding Rs. 15 lakh annually, may find the old regime more beneficial. By utilizing tax-saving investments and deductions available under the old regime, higher-income earners can maximize their tax savings effectively.
To Read about the Slabs and Rates with deductions & exemptions under Old & New Tax regime CLICK HERE
To Access the CBDT Notification 2/2024 (Clarification on verification of ITR) CLICK HERE
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