Many employees are currently facing confusion regarding which tax regime to choose when their employer requests to deduct taxes from their salary.
So, here a article which might help you decide which regime to go for and save taxes.
Before moving ahead here are some points to notes that issued by Income Tax Department vide circular no. 4/2023:
Employer to seek information from the employee about their intended tax regime for the purpose of TDS deduction.
If employee doesn't submit such intimation, employer shall deduct the TDS in accordance with new tax regime.
Employee is allowed to opt for the different tax regime at the time of filing of the return of income.
Here is the comparison between Old & New Regime:
Basic Exemption Limit:
It is the minimum amount of income up to which an individual is not required to pay any income tax. It is the threshold level of income below which no tax liability arises.
As per Old Regime: Rs. 2,50,000
As per New Regime: Rs. 3,00,000
Tax Rebate:
A rebate is a reduction in the amount of tax an individual is required to pay. It is essentially a refund or a credit given to taxpayers by the government for certain expenses or investments.
As per Old Regime: Rs. 5,00,000
As per New Regime: Rs. 7,00,000
This means that NO TAX needs to be paid if Gross Total Income computed is below 5 Lakhs (under Old Regime) and 7 Lakhs (under New Regime)
Now comes the question how to compute my Gross Total Income. Department allows some Deductions & Exemptions from the Total Income of an Individual which can be deducted to arrive at Gross Total Income.
Let's see what are those:
Standard Deduction: (Only for Salary Income)
Under both the Regimes Standard Deduction limit as been kept at Rs. 50,000
Deduction & Exemptions: (To all the Individuals Including Salaried Employees)
Deductions and exemptions are two types of tax benefits that can reduce an individual's taxable income and, in turn, lower their tax liability.
Under Old Regime -
House Rent Allowance (With Limitations)
Leave Travel Allowance (With Limitations)
Leave Encashment (With Limitations)
Exemption on Voluntary Retirement 10(10C), Gratuity u/s 10(10) and Leave Encashment u/s 10(10AA)
Mobile and Internet Reimbursement, Food Coupons or Vouchers, etc.
Standard deduction of up to 30% of the annual value of the let-out property, in case of rental income from property
Investments under Section 80C (PPF, ELSS, EPF, Life Insurance Premium, Home Loan Principal, etc)
Home Loan Interest Payment
Health Insurance Premium (Incl. Family)
Contribution to NPS (By both Employer or Employee)
Interest paid on Education Loan
Donation to specified institutions (Section 80G)
Interest on Saving Account (upto 10,000) and Fixed Deposit (upto 50,000 only for Senior Citizens)
Note: These deductions and Exemptions are not Exhaustive.
Under New Regime:
Deduction towards Employer’s Contribution to NPS
Expenses towards earnings from Family Pension up to 15,000
Standard deduction of up to 30% of the annual value of the let-out property, in case of rental income from property
Exemption on Voluntary Retirement 10(10C), Gratuity u/s 10(10) and Leave Encashment u/s 10(10AA)
Amount paid or deposited in the Agniveer Corpus Fund
By this we can understand that Gross Total Income shall be computed in the following manner:
Total Income - Std. Deduction - Other Deduction - Exemptions = Gross Total Income
Now that we have computed the Taxable Total Income, we will look at the Slab Rates at which Income Tax is charged:
Income Tax Rate Slabs:
Under Old Regime
Total Income | Rate of Tax |
|---|---|
Upto Rs. 2,50,000 | Nil |
Rs. 2,50,001 to Rs. 5,00,000 | 5% |
Rs. 5,00,001 to Rs. 10,00,000 | 20% |
Above Rs. 10,00,000 | 30% |
Under New Regime
Total Income | Rate |
|---|---|
Upto Rs. 3,00,000 | Nil |
Rs. 3,00,001 to Rs. 6,00,000 | 5% |
Rs. 6,00,001 to Rs. 9,00,000 | 10% |
Rs. 9,00,001 to Rs. 12,00,000 | 15% |
Rs. 12,00,001 to Rs. 15,00,000 | 20% |
Above Rs. 15,00,001 | 30% |
To summarize Old Tax Regime has general deductions and exemptions, whereas New Tax Regime has Lower Slab Rates with much of the deductions.
It might be difficult to compute Tax Liability for each Individual in this article separately, so in case if you feel it difficult to compute feel free to contact us.
Comments