Introduction
Standard deduction Rs.50,000/- U/s 16(ia) under new and old tax regime as per budget 2023.
The Tax Landscape Post-Budget 2023
The Tax Regimes: Old vs. New
Depending on the effective slab rates on their total income covered under the old or new tax regime, all salaried workers will be subject to tax. Salaried employees must file their income tax returns at the beginning of the 2023-2024 financial year because, after multiple deductions, income tax is calculated across multiple tax slabs.
Key Budgetary Changes
Therefore, tax planning should begin at the beginning of the new tax year. Under the New Tax Regime, new income tax rates and rates have been proposed in the Finance Bill, 2023.
The two major announcements made in the Union Budget for 2023-24 were that the FM increased the tax exemption limit under the new tax regime from ₹2.5 lakh to ₹3sem and that the standard exemption of ₹50,000 was included in the new tax regime, previously available only in the old tax system.
However, these changes will come into effect from next year, ie. for AY 2024-25. Earners know that they can reduce their effective tax rate to zero if they earn a gross salary of Rs. 10 lakh per financial year. We will find out from our experts.
Each salaried employee would be taxed at marginal rates on his or her total income (i.e., total gross income minus eligible deductions). Thus, for a salaried taxpayer, salary income would be an important component; he will have to take into account any other income such as interest income from banks, rental income etc. in calculating his taxes.
Wage earners without another significant source of income have to face not only rising inflation but also the rising cost of living. Therefore, to optimize their tax planning, workers must take full advantage of the deductions and exemptions available under the IT Law.
New Tax Regime vs. Old Tax Regime: A Comparative Analysis
Thus, any salaried person with a gross salary of Rs. 10 lakhs can claim the following deductions generally required under the old tax regime to bring their effective tax rate to zero:
1. Standard deduction of Rs. 50,000 under Section 16(ia) of the IT Act.
2. Deduction under Section 80C of the IT Act up to Rs. 1,50,000 for payments made to Life Insurance Premium, Provident Fund, National Savings Certificate, Home Loan Officer, etc.
3. Deduction under section 80CCD (1B) of the IT Act of Rs. 50,000 per contribution to the National Pension Scheme notified by the Central Government
4. Deduction under Section 80D of the IT Act of Rs. 25,000 (Rs. 50,000 in case of senior citizen) towards payments made towards Health Insurance Premium.
5. Exemption under Section 24(b) of the IT Act in respect of interest on home loans up to Rs. 2,00,000 per annum while repayment of the principal part of the loan could be claimed as 80C deduction as mentioned above.
After claiming the total income of the assessee, if the total income of the assessee is up to Rs. 5,00,000, then such taxpayer will be eligible to claim a refund under Section 87A of the IT Act, which may be Rs. 12,500 pa.
In addition to the above, salaried taxpayers can also get exemptions of u/s 10 in respect of house rent allowance, travel concession leave, collection leave etc. depending on the components of their salary indicated by their CTC. The limits of such deductions would generally be calculated based on other salary components such as Basic Salary, Credit Allowance, etc.
In Conclusion
Therefore, We observe that a salaried person opting for the proposed new tax regime, who has an income of Rs. 700,000 (i.e. after a standard deduction of Rs. 50,000) will have NIL tax liability.
Note: Every salaried person would have to choose between the old and the new tax regime and going forward for the financial year 2023-24, it is envisaged that the proposed new tax regime will be the 'default' tax regime.
Since the notification on ‘Zero Tax on Income up to Rs. 7.5 Lakhs under the new tax regime in Budget 2023, has become a much-discussed topic and has also been covered by many news channels. However, when it comes to the benefits involved
‘Zero tax’, even the old tax regime is not less than the new one.
Get the all-in-one Automated Income Tax Preparation Excel-based software designed for Govt and Non-government (private) employees for the Financial Year 2023-24 and Assessment Year 2024-25.
