For 2023-24 and Assessment Year 2024-25, the default option will be the new regime (Representational)
With the Interim Budget just days away, all eyes are on Finance Minister Nirmala Sitharaman for tax waivers or enhancement of income tax exemption limits. Amid all the speculations, taxpayers are hoping for some relief in the income tax in the Interim Budget that will be presented on February 1.
For many taxpayers, especially those filing their income tax return (ITR) for the first time, it's often confusing whether to continue with the old regime or to opt for the new tax regime.
Last year, while presenting the Union Budget for the financial year 2023-2024, Nirmala Sitharaman proposed a host of changes to make the new income tax regime attractive.
As announced in the last Budget, effective from April 1, 2023, the basic exemption limit was hiked to Rs 3 lakh from Rs 2.5 lakh under the new tax regime, while the rebate under Section 87A of the Income Tax Act, 1961, was increased to Rs 7 lakh from Rs 5 lakh.
In addition, the Finance Minister also extended the standard deduction of Rs 50,000 for the salaried individuals under the new regime, which was only available under the old regime.
The six income tax slabs under the new income tax regime are as follows:
Tax Slab | Income Tax Rates |
Up to 3,00,000 | Nil |
From 3,00,001 to 6,00,000 | 5% |
From 6,00,001 to 9,00,000 | 10% |
From 9,00,001 to 12,00,000 | 15% |
From 12,00,001 to 15,00,000 | 20% |
From 15,00,001 and above | 30% |
The new tax regime has lower tax rates but fewer exemptions and deductions, while the earlier one had higher tax rates with various deductions under different sections of the Income Tax Act.
In the Budget last year, no changes were made to the old tax regime for FY 2023-24. The country had one tax regime with four tax slabs and tax rates until FY 2019-2020. The old tax regime provided several basic income exemption limits based on the taxpayer's age.
The basic income exemption limit for individuals under 60 years of age is Rs 2.5 lakh, while it is Rs 3 lakh for those who are aged 60 years and above but under 80. The basic exemption limit for senior citizens aged 80 years and above is Rs 5 lakh.
The new tax regime was introduced in FY 2020-21. It was revised from FY 2023-24. This tax regime has become the default option from the current financial year.
How to calculate taxes?
Here's a quick guide on how to calculate income tax liability on your salary:
Gross salary
Start by calculating your gross salary. This includes your basic salary, allowances, bonuses, and other taxable components.
Exemptions
There are certain components of your salary that may be exempted from the income tax. These include House Rent Allowance (HRA), Leave Travel Allowance (LTA) and Standard Deduction. You can subtract these from your gross salary to know your taxable salary.
Deductions
An individual can claim deductions under various sections of the Income Tax Act. These amounts can be excluded to get your net taxable income. Some of these deductions are Employees' Provident Fund, PPF, life insurance, home loan interest, and others.
Taxable Income
You will be able to determine your taxable income after considering exemptions and deductions. Thereafter, you can use the income tax slab rates to calculate the amount of tax you need to pay.
Income tax can also be calculated by providing necessary details on the calculator available on the official website of the Income Tax Department. Here's the direct link.
It's important to note for the taxpayers that for FY 2023-24 and Assessment Year 2024-25, the default option will be a new tax regime. You have to choose the old tax regime if you want to claim all exemptions and deductions.