The finance minister went all out to woo taxpayers into the fold of the concessional tax regime, popularly known as the new tax regime.
Not many taxpayers have shifted to the new concessional tax regime since its introduction in budget 2020. Most individuals have continued with the old tax regime.
With budget 2023 unveiling multiple big changes— by introducing standard deduction of ₹50,000, raising the basic tax exemption limit to ₹3 lakh, tweaking the tax rates and reducing the highest surcharge rate—all under the new tax regime, the needle has definitely moved in favour of this regime.
The new tax regime for individuals and Hindu undivided families, or HUFs, brought via Section 115BAC of the Income Tax Act was aimed at bringing in a lower rate and a simpler tax system from 1 April 2020. Taxpayers could choose between the new and the old regime. Opting for the new regime meant taxpayers would be charged slightly lower tax rates but would have to forgo most deductions and exemptions available to them under the old regime.
Under the new tax regime, the basic income tax exemption limit has been raised from the current ₹2.5 lakh to ₹3 lakh. The number of slabs has been reduced from six to five – the existent 25% tax slab has been done away with. So, for example, those with a taxable income of over ₹12.5 lakh to ₹15 lakh fell within the 25% tax slab (pre-budget new tax regime). Now, those with a taxable income of over ₹12 lakh to ₹15 lakh will fall under the 20% tax slab. Nothing has changed for those in the old tax regime.
Currently, those with an annual income of ₹5 lakh do not pay any income tax either under the old or the new tax regime. This is after taking into account the rebate of ₹12,500 under Section 87A of the Income Tax Act.
Now, a rebate of ₹25,000 will apply to those with income not exceeding ₹7 lakh under the new tax regime. “Persons in the new tax regime, with income up to ₹7 lakh will not have to pay any tax," said Nirmala Sitharaman in her budget speech.
Extending the ₹50,000 standard deduction benefit to the salaried under the new tax regime is another big positive. Currently, salaried individuals (those with income from salary and pension) get standard deduction under the old tax regime but not the new regime.
In a big relief to those in the higher income tax brackets, the highest surcharge rate of 37% (applicable to those with an income of over ₹5 crore) has been cut to 25% under the new tax regime. This will bring down the highest tax rate under the new regime to 39% from 42.74%.
And finally, the new income tax regime is set to become the default regime from financial year 2023-24. You can, however, opt for the old regime if you so want. Currently, the old regime is the default choice for a taxpayer and you can shift to the new regime by opting for it.
With all these changes, someone who is not utilizing several of the tax exemptions and deductions available under the old tax regime can consider shifting to the new tax regime. Though the benefit (in the form of lower tax outgo) of moving to the new tax regime gets better for those with very high income levels (over ₹5 crore).
Here are a few points to note before you make the shift. One, even if you shift to the new regime (and will no longer enjoy any deductions except for the standard deduction), you will still have to continue with some of your investments. For instance, you cannot discontinue your investments in public provident fund and the national pension system as it could result in penalty and freezing of account. Two, for those lacking in investment discipline, moving to the new tax regime will leave them with no incentive to continue with some of these investments, and insurance policies. On the other hand, those with cash flow issues may be able to enjoy the benefit of relatively lower tax rates without having to invest for tax-saving purposes.
This article taken by livemint.com
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