Government never fails to bring surprises through its finance bill. Again this year through finance bill, 2023 which has now been enacted and has become the law of the land i.e., Finance Act, 2023. Government has brought significant changes in the tax structure that applies to individuals and HUF. While it did not disturb the tax slab and the tax rate available to a person opting for the old regime but has brought in significant changes for a person choosing to opt for the new tax regime.
With the new tax regime, it seems as though the government wants to simplify tax return preparation process by way of eliminating a number of exemptions and or deductions which were earlier available to the assessee but on the flip side created a lot of confusion amongst the taxpayers.
In this article let`s discuss the tax slab applicable to the new tax regime and the deductions that are available to the assessee and the deductions which were previously available but are no longer available. The discussion in this article will be from the point of view of a resident salaried person.
The new text slab applicable under the new income tax region is illustrated as under-
Up to Rs 3 lakh
Rs 3 lakh to Rs 6 lakh
Rs 6 lakh to Rs 9 lakh
Rs 9 lakh to Rs 12 lakh
Rs 12 lakh to Rs 15 lakh
Income above Rs 15 lakh
Though this Finance Act, 2023 rebate u/s 87A has been introduced to allow a tax relief of Rs. 25,000/- if the Total Income is upto Rs. 7,00,000/-, meaning thereby that if the TI is upto 7 lakhs the assessee does not have to pay any tax.
TAX (IN Rs.)
Rs 6 lakh to Rs 7 lakh
(-) REBATE U/S 87A
RESULTANT TAX LIABILITY
Vide this Finance Act the standard deduction of Rs. 50,000/- has also been extended for a salaried person offering income to tax under the new scheme. Therefore, a person with a salary of upto Rs. 7,50,000/- need not pay any tax.
Though the new scheme has been gifted with standard deduction and rebate u/s 87A, there are still around 70 deductions and exemptions that are still not allowed under the new tax regime. Some of the major deductions and exemptions that can not be claimed under the new regime are-
Professional tax and entertainment allowance on salaries
Leave Travel Allowance (LTA)
House Rent Allowance (HRA)
Children education allowance
Food allowance of Rs 50/meal subject to 2 meals a day
Other special allowances [Section 10(14)]
Interest on housing loan on the self-occupied property (Section 24)
Chapter VI-A deduction (Section 80C, 80D, 80E and so on, except Section 80CCD(2) i.e. deposit to pension scheme by employer and Section 80JJAA)
Employee`s (own) contribution to NPS
Donation to Political party/trust, etc
However, the following deductions /exemptions still continue to be available to the assessee of the new tax regime-
Transport allowances only in case of a specially-abled person.
Any compensation received to meet the cost of travel on tour or transfer.
Exemption on voluntary retirement 10(10C), gratuity u/s 10(10) and Leave encashment u/s 10(10AA)
Interest on Home Loan on let-out property (Section 24)
Gifts up to Rs 5,000
Deduction for employer’s contribution to NPS account [Section 80CCD(2)]
Deduction for additional employee cost (Section 80JJA)
Standard deduction of Rs. 50,000 as already discussed above
A salaried individual can switch between different tax regimes every year. Further, the salaried individual has to intimate the employer about his choice so that the deduction of tax can be made accordingly. However, while filing o return assessee can opt for a different regime than was previously intimated to the employer.
In addition to above, the highest surcharge rate of 37% has been reduced to 25% under the new tax regime. This move impacts taxpayers earning more than Rs 5 crore, as a result, their overall tax rate will decrease from 42.74% to 39%
CA Pranay Jain is a young and aspiring Chartered Accountant. He qualified Chartered Accountancy Course in 2021 and has a well-established practice in various fields of taxation and auditing, with his core area of practice being in the field of litigation i.e., handling assessment and appeal-related matters and representing assesses before various tax departments.
He is also socially active on LinkedIn at linkedin.com/in/capranayjain
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