new financial year begins in the month of April, and with it come income tax duties. At the presentation of the Union Budget for financial year 2023-24, the government announced some changes to the prevalent income tax slabs, making the new tax regime more appealing compared to the old one. This year, the new tax regime includes new benefits like the introduction of standard deduction for salaried individuals, no tax on taxable income up to ₹7 lakh, and a reduction of surcharge on taxable income above ₹5 crore. Read on to know why it’s important to select your preferred tax regime in the month of April.
A new financial year begins in the month of April, and with it come income tax duties. At the presentation of the Union Budget for financial year 2023-24, the government announced some changes to the prevalent income tax slabs, making the new tax regime more appealing compared to the old one. This year, the new tax regime includes new benefits like the introduction of standard deduction for salaried individuals, no tax on taxable income up to ₹7 lakh, and a reduction of surcharge on taxable income above ₹5 crore. Read on to know why it’s important to select your preferred tax regime in the month of April.
Why Should You Select Your Tax Regime In April?
The month of April is crucial for salaried individuals because the tax regime they choose will determine the amount of tax that will be deducted from their salary income, short for TDS, during the financial year. Failure to plan your taxes properly and declare them in the month of April may lead to a higher TDS, which can ultimately reduce the net take-home salary.
Starting from the financial year 2023-24, the new tax regime will become the default option. Therefore, if an individual fails to inform their employer about the tax regime they have chosen, TDS will be deducted based on the new income tax slabs under the new tax regime.
If more tax is deducted from your salary income than your actual tax liability, you will have to wait for the income tax department to process your income tax return (ITR) form and issue an income tax refund. Therefore, when your employer asks for your investment declaration to deduct taxes on your salary income, it is important to weigh the pros and cons of both tax regimes before selecting one and informing your employer about it in April.
As per a Central Board of Direct Taxes, or CBDT, circular dated April 13, 2020, salaried individuals will have to choose between the old and new tax regimes at the start of each financial year. Once the tax regime for a financial year has been finalised, it cannot be changed until the start of the next financial year. Your employer will then deduct the tax on your salary based on the tax regime option you choose in April.
How To Choose Between New Regime And Old Regime?
When it comes to choosing between the two tax regimes, it is important to consider the tax exemptions and deductions that you can claim under both. After subtracting all the eligible deductions and exemptions, you can then arrive at your net taxable income under the old tax regime and calculate the tax liability accordingly. Then, you should consider your tax liability under the new regime. Through this process, you can choose the regime that has the lower tax liability.