👍👍👍New income tax regime: Brace yourself to pay Rs 25,000 more if you earn even Re 1 over Rs 7 lakh – BusinessToday

Clipped from: https://www.businesstoday.in/personal-finance/investment/story/new-income-tax-regime-brace-yourself-to-pay-rs-25000-more-if-you-earn-even-re-1-over-rs-7-lakh-368723-2023-02-02

Budget tax slab change: Under the new tax regime, those with annual salaries up to Rs 7 lakh need not pay any tax. Following which, 5 per cent tax will be applicable on taxable income from Rs 3-6 lakh, 10 per cent on Rs 6-9 lakh, 15 per cent on Rs 9-12 lakh, 20 per cent on Rs 12-15 lakh, and 30 per cent above Rs 15 lakh.  

FM Nirmala Sitharaman on Wednesday announced that individuals opting for the new tax regime will see their rebate limit go up to Rs 7 lakh in place of the current Rs 5 lakh.FM Nirmala Sitharaman on Wednesday announced that individuals opting for the new tax regime will see their rebate limit go up to Rs 7 lakh in place of the current Rs 5 lakh.

Budget 2023: Union Finance Minister Nirmala Sitharaman has made significant changes in the new income tax regime in a bid to make it more attractive and acceptable among the masses. But experts feel that though the new tax regimes look attractive for the middle-class salaried individual, there are hidden clauses that the individuals should be careful of.  

Sitharaman on Wednesday announced that individuals opting for the new tax regime will see their rebate limit go up to Rs 7 lakh in place of the current Rs 5 lakh. “Currently, those with income up to Rs 5 lakh do not pay any income tax in both old and new tax regimes. I propose to increase the rebate limit to Rs 7 lakh in the new tax regime. Thus, persons in the new tax regime, with income up to Rs 7 lakh will not have to pay any tax,” said the finance minister in her Budget speech on Wednesday. 

Under the new tax regime, those with annual salaries up to Rs 7 lakh need not pay any tax. In the new tax regime, the basic tax exemption limit is Rs 3 lakh irrespective of the age of the taxpayer from FY24. Individuals can avail of benefits like standard deduction and other concessional slabs if their annual salaries are up to Rs 15 lakh. 

Under the new income tax slabs, 5 per cent tax will be applicable on taxable income from Rs 3-6 lakh, 10 per cent on Rs 6-9 lakh, 15 per cent on Rs 9-12 lakh, 20 per cent on Rs 12-15 lakh, and 30 per cent above Rs 15 lakh.  

The new income tax slabs: 

SlabRate of Tax 
Taxable income up to Rs. 3 lakhs NIL 
Taxable income between Rs. 3 lakhs to Rs. 6 lakhs5%
Taxable income between Rs. 6 lakhs to Rs. 9 lakhs10% 
Taxable income between Rs. 9 lakhs to Rs. 12 lakhs15% 
Taxable income between Rs. 12 lakhs to Rs. 15 lakhs20% 
Taxable income between Rs. 15 lakhs and above30% 

Though the finance minister has extended the Section 87A benefit under the new tax regime, it might affect an individual heavily if he earns even Re 1 more than Rs 7 lakh. Under the regime, if a taxpayer earns more than Rs 7 lakh, say suppose Rs 7,00,100, then he or she will have to pay income tax on his total earnings which will be in the Rs 3 lakh-Rs 6 lakh bracket.  

In a nutshell, Sitharaman has raised the Section 87A benefit to Rs 25,000 from Rs 12,500. For an individual earning less than Rs 7 lakh, the tax burden is zero. But if someone earns above Rs 7 lakh per annum, then in that case the Section 87A benefit won’t be applicable while filing the income tax return.  

Old regime vs new regime 

If one looks at the old tax regime, the tax rates are higher when compared to the new tax regime. But the old regime offers a number of deductions or tax exemptions such as house rent allowance (HRA), leave travel allowance (LTA) tax exemptions, Section 80C, 80 D deductions, etc. The biggest section for deduction for tax-paying individuals is Section 80C, by which one can reduce the taxable income by Rs 1.5 lakh in one go.   

Besides, the old tax regime also offers breathers as tax deductions on your loans, like home and education, to premiums you pay for health insurance.

Exemptions Deductions 
House Rent Allowance Public Provident Fund 
Leave Travel Allowance ELSS (Equity Linked Saving Scheme) 
Mobile and Internet Reimbursement Employee Provident Fund 
Food Coupons or Vouchers Life Insurance Premium 
Company Leased CarPrincipal and Interest component of Home Loan 
Standard Deduction Children Tuition Fees 
Uniform Allowance Health Insurance Premiums 
Leave Encashment Investment in National Pension Scheme 
 Tuition fee for Children 
 Saving Account Interest 

 Also read: Budget 2023: New tax regime is now the default tax regime, FM Sitharaman says

In comparison, individuals opting for the new regime will have more income in hand, but they have let go of some major exemptions, including Leave Travel Allowance (LTA), House Rent Allowance (HRA), and deductions available including Insurance Premium payout and Savings Account Interest under chapter VI A of the IT Act Section 80 such as 80C, 80CCC, 80CCD, 80D, 80DD, 80E, 80EE, 80G, 80GG, 80GGA, 80GGC, etc. 

Taxpayers can claim deductions under Section 80CCD (2) of the Income-tax Act, 1961.

 “This will provide major relief to all taxpayers in the new regime. An individual with an annual income of Rs 9 lakh will be required to pay only Rs 45,000. This is only 5 per cent of his or her income. It is a reduction of 25 per cent on what he or she is required to pay now, ie, Rs 60,000. Similarly, an individual with an income of Rs 15 lakh would be required to pay only Rs 1.5 lakh or 10 per cent of his or her income, a reduction of 20 per cent from the existing liability of Rs 1,87,500,” Sitharaman said. 

Also read: Union Budget 2023-24: Why old tax regime is still better than new tax regime

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