Individuals who are not required to have their income accounts audited must file income tax return either ITR for Assessment Year 2022-23 Till July 31, 2022. At present, there are two income tax regimes available to the taxpayers – old income tax regime, new or concessional income tax regime. Before filing income tax returns this year, let’s have a look at the tax regime in detail
Old tax regime:
More than 70 exemptions and deductions are available under the old tax regime to reduce the tax burden of individuals. For investments or expenses on specific financial instruments, taxpayers can claim the deduction.
For example, Section 80C of the Income Tax Act, 1961 helps taxpayers save up to Rs 1.5 lakh per year for various investments. To avail the benefits, individuals need to invest the amount in eligible schemes or spend the specified deductible amount in the same financial year. Investments include Employees’ Provident Fund (EPF), Public Provident Fund (PPF), Equity Linked Savings Scheme (ELSS), National Pension Scheme (NPS), Unit Linked Insurance Plan (ULIP), Sukanya Samriddhi Yojana (SSY), National Savings . Certificate (NSC), and a five-year tax-saving fixed deposit with a bank and/or post office.
Taxpayers can also opt for a deduction of up to Rs 25,000 for the insurance premium. If the age of the insured is above 60 years, the deduction can increase up to Rs 50,000.
Salaried individuals can claim exemption on components of their salary such as House Rent Allowance (HRA) and Leave Travel Allowance (LTA). A standard deduction of Rs 50,000 will also be available under the old tax regime.
New Tax Regime:
The concessional tax regime, which was introduced in Budget 2020, has higher tax slabs and lower tax rates than the old system. Also, exemptions and deductions from the old tax regime have been removed.
Income Tax Slabs Under Old Income Tax Regime Vs New Income Tax Regime:
Tax Slab (in Rs.) | Old Tax Rates (percentage) | new Tax Rates (Per Percentage) |
0 – 2,50,000 | 0 | 0 |
2,50,000 – 5,00,000 | 5 | 5 |
5,00,000 – 7,50,000 | 20 | 10 |
7,50,000 – 10,00,000 | 20 | 15 |
10,00,000 – 12,50,000 | 30 | 20 |
12,50,000 – 15,00,000 | 30 | 25 |
15,00,000 and above | 30 | 30 |
Under the new tax regime, annual income between Rs 5 lakh and Rs 7.5 lakh will attract 10 per cent tax, while income between Rs 7.5 lakh and Rs 10 lakh per annum will attract 15 per cent tax. Under the old regime, those whose income was between Rs 7 lakh and Rs 10 lakh would fall under the flat 20 per cent tax bracket.
Similarly, income above Rs 10 lakh has been divided into three slabs under the new tax regime – 20 per cent tax on income between Rs 10 lakh and Rs 12.5 lakh; 25 per cent for income between Rs 12.5 lakh and Rs 15 lakh; and 30 per cent tax on income of Rs 15 lakh and above.
List of certain exemptions and deductions that will not be available under the new tax regime:
1) Leave Travel Allowance or LTA;
2) House Rent Allowance or HRA;
3) Standard deduction of Rs 50,000 currently available to all salaried individuals and pensioners;
4) Special deduction allowance under Rule 2BB (such as Children’s Education Allowance, Hostel Allowance, Transport Allowance, Per Day Allowance, Uniform Allowance, etc.);
5) allowance for adding to the income of a minor;
6) Exemption of SEZ under section 10AA;
7) deduction for entertainment allowance and professional tax under section 16;
8) Tax benefit on interest paid on housing loan taken for self-occupied or vacant house property resulting in loss of house property under section 24;
9) various deductions under sections 32AD, 33AB and 33ABA;
10) deduction for donation or expenditure on scientific research under section 35;
11) deduction under section 35AD or 35CCC;
12) allowed deduction of Rs.15,000 from family pension under clause (iia) of section 57;
13) Taxes under Chapter VI-A (eg sections 80C, 80CCC, 80CCD, 80D, 80DD, 80DDB, 80E, 80EE, 80EEA, 80EEB, 80G, 80GG, 80GGA, 80GGC, 80IA, 80-IAB, 80-IAC) claim deduction, 80-IB, 80-IBA, etc.)
It should be mentioned that deduction under sub-section (2) of section 80CCD (employer contribution to employee’s account in notified pension scheme-mostly NPS) and section 80JJAA (for new employment) can still be claimed. Is;
14) Deduction under section 80TTA or 80TTB
Who can opt for the old tax regime and the new tax regime?
Salaried individuals and pensioners can choose between the old tax regime and the new concessional tax regime in each assessment year as per their convenience. However, taxpayers with business or professional income do not have the right to choose between the two tax regimes in each financial year. Such taxpayers will have only one option to switch between the two regimes.
Which should you choose: the old tax regime or the new tax regime?
Explaining the rationale behind the new tax regime, Aarti Rawate, Partner, Deloitte, said, “The new tax regime was introduced to provide taxpayers with less tax, while at the same time providing HRA, LTA, standard deduction, 80C. Some exemptions or deductions like that were denied. Profit etc. Thus the new tax regime will be beneficial to the taxpayer who does not have such deduction to claim from the total income so as to take advantage of the reduced tax incidence.
It is important to calculate the tax burden before choosing a tax regime. “While going for tax planning, you should find out how much tax you have already saved. In general, we do many things and they have tax saving events. For example, we pay tuition fees for children, have health and life insurance, do regular health check-ups and maybe a home loan. All these activities are unknowingly saving tax for us. We can then get an idea of how much of the tax saving bracket is left unutilized,” suggests Sujit Bangar, founder, TaxBuddy.com.
Taxpayers must calculate taxes under both arrangements and find out for each tax year which is better for them to get the best out of this benefit.
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