Individual taxpayers have much to think about heading into the new financial year. The primary question will be whether to choose the new tax regime, which is now the default option. If you are a salaried taxpayer and earning up to Rs 7.5 lakh, you might want to consider doing just that.
Under the proposed new tax regime, with the introduction of the standard deduction for the salaried, an individual with a gross salary of Rs 7.5 lakh would have a net taxable income of Rs 7 lakh. In Budget 2023, Finance Minister Nirmala Sitharaman announced a higher rebate of Rs 7 lakh rupees, up from the earlier Rs 5 lakh.
This means that an individual with a net taxable income of Rs 7 lakh or less will not have to pay tax.
Arguments have been made that the old tax regime effectively provides the same benefit. Indeed, if an individual earning Rs 7.5 lakh claims the full benefit of Section 80C and Section 80CCD, they would bring their net taxable income to below Rs 5 lakh – the threshold below which the government provides a rebate under the old tax regime. As a result, they would pay no tax.
However, in such a case, the individual would be required to make tax-saving investments over and above the amount contributed to the employee provident fund. Assuming a basic salary of 50% of gross income, the individual in the illustration would contribute Rs 45,000 to the EPF. In order to bring taxable income below the Rs 5 lakh threshold, the person would have to make tax-saving investments of Rs 1.05 lakh. This reduces income in hand.
By increasing the threshold for rebate under the new tax regime and by widening the slabs, the government is attempting to bring parity between the two regimes. The incentive to transition to the new regime, therefore, is the simplicity of calculation of tax and the filing of returns.
No TDS If You're Eligible For A Rebate
Remember, if you qualify for the rebate, you won’t have to pay tax at all.
“The tax does not even get deducted at source by the employer. This is because the employer is entitled to consider relief under Section 87A, which relates to the rebate, at the time of withholding tax,” said Saraswathi Kasturirangan, partner at Deloitte India.
You will, however, have to file your returns if your income crosses the taxable threshold.
“Those earning below Rs 3 lakh under the proposed new tax regime and below Rs 2.5 lakh under the old tax regime are not required to file returns,” said Arvind Rao, founder, Arvind Rao & Associates.
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