Taxation Regime simplified: Five mind blowing amendments that will help you save more tax!
Table of Contents
Introduction:
Taxes are an inevitable part of life. In the last few years, the government of India has introduced significant changes, amendments, and alternatives to the Indian tax system. One such significant transition that often sparks debate and confusion is the shift from an old tax regime to a new one. In this blog, let us dive deep into the dynamics of this transition.
Understanding the New Taxation Regime:
The new tax regime was introduced in the Finance Act of 2023. to meet the challenges faced by the old tax regime. Any person other than a company or firm can opt for the new tax regime. This shall be set as the default regime starting from the assessment year 2024–25. However, taxpayers can still opt for the old tax regime if that is beneficial for them.
The tax rates provided by the new tax regime in 2020 are comparatively lower than the old tax regimes. The government of India brought forward five key changes to this new tax regime. They are:
1. Simplified tax slabs:
The new tax regime provides lower and simplified tax rates. They are:
| Income (₹) | New Tax Regime | Income (₹) | Old Tax Regime |
| 0-3,00,000 | Nil | 0-2,50,000 | Nil |
| 3,00,000-6,00,000 | 5% | 2,50,000-5,00,000 | 5% |
| 6,00,000-9,00,000 | 10% | 5,00,000-10,00,000 | 20% |
| 9,00,000-12,00,000 | 15% | Above 10,00,000 | 30% |
| 12,00,000-15,00,000 | 20% | ||
| Above 15,00,000 | 30% |
Note that the tax slabs in the old tax regime represent the individuals below 60 years of age.
2. Higher exemption limit:
Anybody below the income of ₹3 lakhs will not have to pay any tax. This is because the tax exemption limit under the new scheme has been raised to ₹3 lakhs per year now. The new tax slabs, in comparison to the old ones, are:
3. High tax rebate limit:
The government of India has introduced a full tax rebate on an income of up to ₹7 lakh. This is ₹2 lakh higher than the old tax regime. That is why every person who has a total income of ₹7 lakhs will not have to pay tax on his income if he switches to the new tax regime.
4. Standard deduction for salary holders:
The standard deduction of ₹50,000 that was deductible only in the old tax regime has been broadened to the new tax regime as well. Under the new regime, tax payers, too, can now avail themselves of the benefits of the standard deduction.
5. Reduced Surcharge:
The maximum surcharge applicable to income above ₹5 crore has been reduced to 25%. Along with this, various other benefits, like the benefits for family pensions and higher leave encashment exemptions, are also added.
Which tax regime should you opt for?
Both tax regimes present a plethora of pros and cons. One can opt for that tax regime which is benefical for them.
For example:
Mr. Ashok’s annual salary income is ₹10,00,000, and he gained ₹50,000 from his short-term capital assets (equity). He claims the following deduction:
Section 80C (PPF) : ₹1,00,000
Section 80D (health insurance premium for himself): ₹1,50,000
Section 80E: ₹10,000
Section 80G (Donation to charity): ₹50,000
Mr. Ashok will end up paying ₹75920 under the old regime after availing of the deductions of ₹1,85,000, whereas he will pay ₹62,400 as tax under the new regime. Thus, Mr. . Ashok can save ₹13,520 if he opts for the new tax regime.
