Are you still struggling to decide between the old and new income tax regimes? The Budget 2023 has brought a significant change: the default adoption of the new tax regime. This change aims to simplify tax filing and encourage more people to opt for the new regime, which offers lower tax rates but fewer deductions and exemptions. If you fail to choose either the old or new regime, your taxes will be calculated under the new regime by default. However, you can switch back to the old regime before the due date for filing your return.
The new income tax regime offers several benefits, including a simplified tax structure with lower rates, reduced tax liability, and increased disposable income for taxpayers. By eliminating various deductions and exemptions, it streamlines tax compliance, saving time and effort for taxpayers.
Advantages of the new tax regime:
1) Lower Tax Rates
Taxpayers can benefit from lower tax rates under the new regime, resulting in reduced tax liability and higher disposable income.
Aarti Raote, Partner at Deloitte India, stated, “The government has been pushing the new tax regime by making it more attractive for taxpayers. The new tax regime provides the taxpayers with a substantially lower tax rate.”
2) Simplified Tax Structure
The new regime simplifies the tax structure by offering lower tax rates:
- No tax would be levied for income up to ₹3 lakh
- Income between ₹3-6 lakh would be taxed at 5%
- Income between ₹6-9 lakh would be taxed at 10%
- Income between ₹9-12 lakh at 15%
- Income between ₹12-15 lakh at 20%
- Income of ₹15 lakh and above will be taxed at 30%.
3) No Tax Deductions
The new regime eliminates the need to track and claim deductions, saving time and effort for taxpayers. According to Aarti Raote, “Further, the taxpayers also do not have the hassle of collecting and providing details and evidence for expenditure and investments.”
4) Basic Exemption Limit
The basic exemption limit has been elevated from ₹2.5 lakh to ₹3 lakh, making the new tax regime more appealing.
5) Changes in the Surcharge Rate
The implementation of the new tax regime leads to a reduction in the surcharge rate from 37% to 25%, applicable for individuals with income exceeding ₹5 Crores.
6) Change in the Rebate Limit
The new tax regime has increased the rebate limit to ₹25,000 if the taxable income is less than or equal to ₹7 lakh. This is a significant increase from ₹12,500 under the old tax regime.
7) Standard Deduction
Salaried individuals’ standard deduction under both the old and the new regime is ₹50,000.
8) Exemption on Leave Encashment
Under the new tax regime, there is an exemption on leave encashment. The exemption limit for leave encashment was raised from ₹3 lakh to ₹25 lakh for non-government employees.
In addition to these advantages, there are other deductions available under the new regime, such as deduction from family pension income and the amount paid or deposited in the Agniveer Corpus Fund.