New Delhi:
Finance Minister Nirmala Sitharaman during her Budget 2023 speech last year had said that to provide relief to the middle class in income tax, taxpayers with an annual income of less than ₹7 lakh would be given full exemption. While earlier this exemption was available only to those whose annual income was less than ₹5 lakh. The most important and noteworthy point in the announcement of this relief was that this relief would be given only to those taxpayers who would adopt the new tax regime and abandon the old tax regime.
One more thing to keep in mind is that this exemption will be given only while computing income for the financial year 2023-24, i.e. while filing ITR. However, taxpayers who have invested in small savings schemes, or purchased life insurance policies, and are paying premiums, or have opened a PPF account, or who have taken loans, or live on rent get HRA exemption on house and house rent allowance, The old tax system is said to be better for them. Generally speaking, the old tax system will be better for taxpayers who avail exemptions or deductions of ₹3 lakh or more under various heads other than standard deduction. So, when you file ITR, i.e. Income Tax Return, you should choose the beneficial tax regime only after careful calculation.
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Contents
Please clear this misunderstanding…
A rumor has spread in many places that once a taxpayer has opted for the new tax system, he cannot opt for the old tax system even if he wants to. But such news are just rumours, not completely true. The reality is that as per the rules, only business taxpayers, who are not salaried or pensioners, cannot revert to the old tax system after opting for the new tax system. The option of choosing either the new or the old tax system will be available to the working class every year, i.e. once opting for the new tax system, they can revert to the old tax system in the next year if they wish.
What was the correct ad…?
In the year 2020, the Finance Minister announced a new tax regime under Section 115BAC of the Income Tax Act from the financial year 2020-21, i.e. assessment year 2021-22. Even then, the income tax slabs announced under the new system were very advantageous, i.e., in the new tax regime, the tax rates were kept very low even for high incomes, but no provision was made for any benefit in this system. Exemption or deduction I went. The old tax system was retained, with zero tax on income up to ₹2.5 lakh, 5% on income between ₹2.5 lakh and ₹5 lakh, and 20% on income between ₹5 and ₹10 lakh. Per cent and 30 per cent tax had to be paid on earnings above ₹ 10 lakh. This slab is still the same as the old tax system.
Income tax slab in new tax system…
According to the announcement made in the budget of the year 2020, according to the tax slab created in the new tax system, zero tax on income up to ₹2.5 lakh, 5 percent on income from ₹2.5 to ₹5 lakh, ₹5 to ₹. 10% on income up to ₹7.5 lakh, 15% on income between ₹7.5 lakh and ₹10 lakh, 20% on income between ₹10 and ₹12.5 lakh, 25% on income between ₹12.5 lakh and ₹15 lakh and ₹30 on income above ₹15 lakh. % tax had to be paid, but now the tax slab of the new tax system has been changed and now the amount of tax free income has been increased from ₹2.5 lakh to ₹3 lakh. Out of this, adopters of the new tax system will have to pay 5% tax on income beyond ₹3 lakh, i.e. ₹3 lakh to ₹6 lakh, ₹6 to ₹9 lakh will be charged 10% tax. , income up to ₹ 12 lakh will be taxed at ₹ 9 to ₹ 15 per cent and income between ₹ 12 to ₹ 15 lakh will have to pay 20 per cent tax. As before, 30 percent tax has to be paid on income above ₹15 lakh.
Earnings up to ₹7 lakh are tax free in NTR…
Under the announcement made in the year 2020, apart from the tax slab, if the annual income is less than ₹ 5 lakh in both the tax regimes, exemption was given to taxpayers under Section 87A of the Income Tax Act, thereby reducing the entire tax of the taxpayer, i.e. whose income is ₹ 5 lakhs they do not have to pay any income tax. It is also worth noting here that if the income is more than ₹5 lakh, the entire amount above ₹2.5 lakh has to be paid as per the applicable slab, whether you have opted for the old tax regime or the new tax regime. But then the tax slab along with the exemption limit under section 87A was changed by the announcement made in the budget of the year 2023. Now the taxpayers who are going to file ITR for the financial year 2023-2024 can avail this benefit. Now instead of ₹5 lakh, if their income is up to ₹7 lakh, they will be completely exempted from tax, but only those who adopt the new tax system will get the benefit. Those who will remain in the old tax system will have to pay income tax as soon as their income exceeds ₹5 lakh.
So, keep in mind, Section 80C of Income Tax Act (life insurance, PF, PPF, children’s school fees, principal withdrawal in home loan etc.), NPS, House Rent Allowance (HRA) for those who want it. For getting rebates and saving on interest paid on home loans, the old tax regime will still be better, but for everyone else, opting for the new tax regime will be beneficial.