Every year income tax slabs may get altered based on the needs and requirements of the nation. This year as well, the Finance Ministry of India brought about this change in income tax slabs.
The finance minister, Nirmala Sitharaman, announced the Union Budget for 2023 on February 1, 2023. A few changes to the existing income tax slabs occur in this budget.
Under the new tax regime, the rebate for income tax increases to Rs.7 lakh from the earlier limit of up to Rs. 5 lakh. Apart from that, surcharge rate on income of Rs.5 crore and above decreases to 25% from 37%.
The income tax you are liable to pay depends on your income tax slab. There are two tax regimes as of now. Old and new income tax regime. You can choose from any of them and pay your liable tax. Under both tax regimes, you can avail yourself of tax benefits.
Let’s know more about the new income tax regime in the below article.
What Are the Deductions Allowed under the New Tax Regime?
Budget 2023 introduces certain deductions in the new income tax slabs. If you are eligible, you can claim these deductions under the new tax regime starting April 1, 2023.
- You can claim the standard deduction of Rs.50,000 from your salary/pension. This deduction is available only if you have revenue under the heading ‘income from salaries’ during the relevant financial year.
- A standard deduction of Rs 15,000 will be available under the new tax regime for family pensioners. It comes under the head ‘income from other sources.
- The new tax regime allows you to claim the benefit of a standard deduction of Rs. 50,000 in addition to any NPS contribution by the employer to the employee’s NPS account under Section 80CCD (2).
- The maximum amount you can claim under this section varies for private and government employees. If you are a private sector employee, you can claim a deduction of up to 10% of your salary. In the case of government employees, the maximum deduction allowed is 14% of their salary.
- The new tax regime also declares that you can claim any amount deposited to the Agniveer Corpus Fund as a deduction from income under Section 80 CCH.
These are the deductions that are possible under the new tax regime.
Is the New Tax Regime Better for Me?
The new tax regime benefits you only if you are eligible for deductions under section 80C. It has an easy process as you will not require many documents to file your returns. You can have a standard deduction of INR 50,000 and a deduction for a family pension of INR 15,000 in the new tax regime.
However, if you are eligible for other deductions such as interest on a home loan or HRA, the old tax regime is more beneficial.
Hence, have a detailed analysis of which tax regime benefits you and choose wisely.
Things you Must Keep in Mind before opting for New Tax Regime
Here are a few things you must keep in mind before opting for the new tax regime.
- You can choose this option on or before every previous year if you are an individual or member of a Hindu Undivided Family (HUF) and do not have any business income.
- Once you choose the new tax regime, you cannot change it during the year. Only in the next financial year you withdraw and modify your preferred tax regime.
An example of calculation of income tax for FY 2023-24 under the New regime (optional):
| Total Income (Gross) | Rs.12 lakh |
| Deductions (80C, 80CCD) | – |
| HRA | – |
| Travel and Medical Allowance | – |
| Income that is Taxable | Rs.12 lakh |
| Up to Rs.3 lakh | – |
| Above Rs.3 lakh – Rs.6 lakh | Rs.15,000 |
| Above Rs.6 lakh – Rs.9 lakh | Rs.30,000 |
| Above Rs.9 lakh – Rs.12 lakh | Rs.45,000 |
| Above Rs.12 lakh – Rs.15 lakh | – |
| Total Tax that must be Paid | Rs.90,000 |
Is 80C Not Applicable in the New Tax Regime?
No, Section 80C is not available in the new tax regime. Section 80C is one of the most popular and most-opted deductions that allows you to save your tax by Rs.150,000. You can claim deductions from your House Rent Allowance, interest on your home loan, and many more under Section 80C.
You cannot avail of these benefits if you choose the new tax regime.
What Is the Disadvantage of the New Tax Regime?
You have more freedom under the new tax system to invest as per your financial goals. In the new tax regime, there is no obligation to invest in insurance and tax-saving plans, which may not align with your long-term financial goals.
However, the most important deductions, like House Rent Allowance, Leave Travel Allowance, Home loan exemptions, etc., are not applicable in the new tax regime. It is the greatest disadvantage of the new tax regime.
These deductions could save you up to Rs.2,50,000 in the old regime, which is not possible under the new regime.
Analyze and calculate your benefits based on the two regimes, and then choose wisely.
FAQs: New Income Tax Regime
1. Is a 50000 standard deduction allowed in the new tax regime?
Yes, the standard deduction of Rs.50,000 is allowed in the new tax regime. Under the new tax regime, you can claim only this standard deduction and the deduction for pensioners
2. Which is better: choosing a new tax regime or the old one?
If you need to claim deductions and exemptions under the new tax slab, it includes a variety of income levels and rates. Deductions and exemptions are also available under the old tax slab. Depending on your needs, you can choose either of them.
Do a comparative evaluation and assessment under both tax systems before filing your returns.
3. Which tax regime is better if my income is 15 lakhs?
If you earn 15 Lakhs, the revised new tax regime is better for you. It comes into effect on April 1, 2023. As per the new tax regime (pre-budget 2023), if your income is Rs 15 lakh, you would fall under the 25 percent tax bracket, and your tax liability would be Rs 1.95 lakh.
However, the new tax regime doesn’t offer the standard deduction benefit.
4. Should we file ITR for the new tax regime?
You can select the new tax regime before filing your income tax returns for the relevant financial year. You should communicate your selection of tax regime by notifying the income tax department through Form 10IE.
If you are a salaried employee, your employer asks for a declaration from you to choose between the old and new tax regimes. You can indicate this by filling out Form 10IE.
After your notification, you can file your income tax returns based on the new tax regime.
Bottomline
As you see from the above article, the new tax regime that comes into effect this financial year has pros and cons. If you earn a higher-end salary, the new tax regime benefits you as the income tax slab rates decrease, and the surcharge rates also see a massive decline in the new tax regime.
However, the new tax regime has its own cons, as discussed above. Be aware of your financial status and choose wisely between the two regimes. Feel free to get in touch with us in case of any clarifications about the new tax regime.