According to the effective slab rates on his or her total income falling under the old or new tax regime, every salaried employee would be subject to taxation. Salary employees should file their income tax returns at the beginning of the fiscal year 2023–2024 because, after various deductions, income tax is computed based on several tax slabs. As a result, tax planning must begin with the commencement of a new fiscal year. Under the New Tax Regime, new income tax slabs and rates have been proposed in 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 ₹3 lakh and that a standard deduction of ₹50,000 was introduced under the new tax regime, which was previously available only under the old tax regime. However, these changes will take effect starting next year i.e. for AY 2024-25. Do salaried people know that they may reduce their effective tax rate to zero if they earn a gross salary of Rs. 10 lakh in a fiscal year? We’ll find out from our experts.
1. Standard deduction of Rs. 50,000 under section 16(ia) of IT Act.
2. Deduction under section 80C of IT Act of upto Rs. 1,50,000 towards payments made to Life Insurance Premium, Provident Fund, National Savings Certificate, Housing Loan Principal, etc.
3. Deduction under section 80CCD (1B) of IT Act of Rs. 50,000 on contribution to National Pension Scheme notified by 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 to Health Insurance Premium.
5. Deduction under section 24(b) of the IT Act with regards to interest on housing loan upto Rs. 2,00,000 pa whereas the repayment of the principal component of the loan could be claimed as deduction u/s 80C as aforementioned.
After claiming all the deductions available to the salaried person, if the total income of the taxpayer is upto Rs. 5,00,000, then such taxpayer would be eligible to claim rebate under section 87A of IT Act of upto Rs. 12,500 pa.
The below illustration provides a brief overview on the tax computation for a gross salary of Rs. 10 lakhs:
| Particulars | Amount (Rs.) | Amount (Rs.) |
| Income under the Head ‘Salary’ | ||
| Gross Salary | 10,00,000 | |
| Less: Standard Deduction u/s 16(ia) | (50,000) | 9,50,000 |
| Income from House Property | ||
| Interest Paid/ Payable on Housing loan (assuming on Self occupied property) | (2,00,000) | (2,00,000) |
| Income from other Heads is assumed to be NIL | – | – |
| Gross Total Income | 7,50,000 | |
| Less: Deductions under Chapter VI-A | ||
| Deduction u/s 80C | ||
| LIC premium | 40,000 | |
| Contribution to Public Provident Fund | 70,000 | |
| Tuition Fees of children | 5,000 | |
| Repayment of Housing Loan | 50,000 | |
| Deduction u/s would be restricted to maximum Rs. 1,50,000 | (1,65,000) | (1,50,000) |
| Deduction u/s 80CCD(1B) Contribution to National Pension Scheme | (50,000) | (50,000) |
| Deduction u/s 80D Mediclaim premium paid for | ||
| Self and Spouse | 25,000 | |
| Parents (aged 50 years and above) | 25,000 | (50,000) |
| Net Taxable Income | 5,00,000 | |
| Total Tax @ applicable marginal slab rate of 5% | 12,500 | |
| Rebate u/s 87A (Tax payable or Rs. 12,500 whichever is lower) | (12,500) | |
| Total Tax Payable | NIL |
Apart from the above, salaried taxpayers may also avail exemptions u/s 10 with regards to House rent allowance, leave travel concession, leave encashment, etc. depending upon their salary components as specified in their CTC. The limits for such deductions would generally be computed based on certain salary components such as Basis Salary, Dearness allowance, etc.
Please note that a salaried individual who opts for the new proposed tax regime, having an income of Rs. 700,000 (i.e. after a standard deduction of Rs. 50,000) will have NIL tax liability.
Note: Every salaried individual would have the option of choosing between the old and new tax regime and going forward for Financial Year 2023-24, it is announced that the proposed new tax regime would be the ‘default’ tax regime.
