Exemptions & Deduction under New Tax Regime

New Tax Regime vs Old Tax Regime: Key Updates for FY 2023-24

Introduction to the New Tax Regime 2024: The Indian government has introduced significant changes to the tax regime under the Budget 2024, with the new tax system now being the default option for taxpayers. However, individuals still have the flexibility to opt for the old tax regime based on their financial situation. Here are some key updates on the new tax regime, including income tax slabs, exemptions, deductions, and how taxpayers can plan their taxes effectively.

Key Features of the New Tax Regime 2024:

1. Tax Rebate on Income up to ₹7 Lakhs:
   • A tax rebate has been introduced, allowing taxpayers with income up to ₹7 lakhs to pay no tax under the new tax regime. This means individuals with taxable income below ₹7 lakhs will not have to pay any tax.
2. Increased Tax Exemption Limit:
   • The tax exemption limit has been raised from ₹2.5 lakh to ₹3 lakh, making it more beneficial for individuals in lower-income brackets.
3. Revised Income Tax Slabs:
   • The income tax slabs have been recalibrated to make the system more progressive:
     • Up to ₹3 lakh: Nil
     • ₹3 lakh – ₹6 lakh: 5%
     • ₹6 lakh – ₹9 lakh: 10%
     • ₹9 lakh – ₹12 lakh: 15%
     • ₹12 lakh – ₹15 lakh: 20%
     • Above ₹15 lakh: 30%
4. Standard Deduction of ₹50,000:
   • The standard deduction of ₹50,000, previously available only in the old tax regime, has now been extended to the new tax regime as well.
5. Reduction in Surcharge Rate:
   • The highest surcharge rate of 37% has been reduced to 25%. This reduction will benefit high-income earners, particularly those earning above ₹5 crore, as their overall tax rate will decrease from 42.74% to 39%.

Exemptions and Deductions Not Claimable Under the New Regime:

The new tax regime offers a simpler structure, but it also means that several deductions and exemptions that were available in the old tax regime are not applicable. These include:

• Standard deductions under Section 80TTA/80TTB
• Professional tax and entertainment allowance on salaries
• Leave Travel Allowance (LTA)
• House Rent Allowance (HRA)
• Minor child income allowance
• Interest on housing loan for self-occupied or vacant property (Section 24)
• Deductions under Chapter VI-A (Sections 80C, 80D, 80E, etc.), except for Section 80CCD(2) and Section 80JJAA
• Exemption on employee’s NPS contribution (except under Section 80CCD(2))

Exemptions and Deductions Available Under the New Tax Regime:

Although several deductions are not available, there are still some key exemptions and deductions that taxpayers can claim under the new tax regime:

• Transport allowances for specially-abled individuals
• Conveyance allowance for employment-related travel
• Gratuity and Leave encashment (Sections 10(10), 10(10AA))
• Interest on home loan for let-out property (Section 24)
• Employer’s contribution to NPS (Section 80CCD(2))
• Gifts up to ₹5,000
• Deductions for voluntary retirement and family pension income (as per updates from Budget 2023)

How to Choose Between the New and Old Tax Regimes:

• Salaried Taxpayers:
  • Salaried individuals must choose their preferred tax regime at the beginning of the financial year and inform their employer. Once the choice is made, the taxpayer cannot change it mid-year. However, they can revise their choice when filing the income tax return for the year.
• Non-Salaried Taxpayers:
  • Non-salaried taxpayers (e.g., business owners or freelancers) must select the new tax regime when filing their return, without the need to notify anyone during the year. Once a non-salaried taxpayer opts out of the new regime, they cannot opt back in for future years.

Tax Planning Tips for FY 2023-24:

To make the most of the new tax regime, taxpayers should evaluate the impact of the tax slabs and exemptions on their overall tax liability. This requires:

• Comparing Tax Liabilities: Taxpayers must compare the overall tax under both regimes to determine which one benefits them the most.
• Form 10IE: If opting for the new tax regime, individuals must submit Form 10IE to the Income Tax Department before filing their return.

Conclusion:

With the new tax regime now being the default, taxpayers have the opportunity to reassess their tax liabilities for the financial year 2023-24. While the new regime offers lower tax rates and a higher exemption limit, it also comes with fewer deductions and exemptions. Choosing the right tax regime is crucial for effective tax planning, and taxpayers should consult with financial advisors or use online tax calculators to make an informed decision.