Let’s discuss the taxability under different income situations as per the new regime announcements made in the Budget 2023-24.
- The new tax regime is the default regime, however, taxpayers can still opt for the old regime
- Introduction of standard deduction of ₹50,000
- Rebate of ₹25,000 for income upto ₹7 lakhs
- Revision of income slabs from six to five (as shown in the table below).
Tax Rates: Old Regime & New Regime
These changes have been made to simplify the tax structure and make the new regime attractive. On the other hand, the old regime continues to be chosen as it has the benefit of deductions against certain investments and expenses.
Let’s try to understand the taxability under both regimes with a few examples.
Raman is a salaried individual with no other sources of income and eligible for certain allowances as part of his salary structure and a deduction u/s 80C of ₹1,50,000 for investment in EPF & PPF.
Salary = ₹25 lakhs, HRA = ₹1 lakhs, LTA = ₹50,000
Karan **(**32 years old) has a total income of 13 lakhs as under:
- Salary Income = 9 lakhs
- House Property: Rental income of ₹2.5 lakhs from his let-out property with a home loan interest of ₹1 lakh
- IFOS = Interest income from a savings account of ₹1,50,000
He has also invested in tax savings ELSS fund and is hence eligible for a deduction u/s 80C.
Kapil (45 years old) has a paper manufacturing business and is also involved in trading activity and some other incomes as under:
- Income from Paper Business = ₹4 lakhs
- Trading Income (Intraday) = ₹5 lakh
- Capital Gains: LTCG = ₹2 lakhs
- Income from Horse Race = ₹1.5 Lakhs
He has brought forward losses of ₹3.2 lakhs from his Intraday activity and is eligible for a deduction u/s 80D of ₹25,000 (self) as taken a medical insurance premium and of ₹1.5 lakhs u/s 80C as invested in sukanya samriddhi saving scheme.
Taxpayers can compare the tax liability under both regimes and choose to opt for the optimal one, i.e., which has the minimum tax liability.
It can also be inferred that salaried individuals with income up to ₹7.5 lakhs do not have any tax liability.
The proposed simpler tax regime and the tweaks in the tax slabs will lessen the burden on taxpayers, applicable from 1st April financial year 2023-24.