Last Updated: February 25, 2023, 11:57 IST
The new tax regime has been chosen as the default choice for all taxpayers beginning in FY24.
The Finance Ministry has reduced the highest surcharge rate from 37% to 25% for earnings over Rs 2 crore.
In Budget 2020, the Indian government unveiled a new income tax structure for taxpayers. Its adoption, however, remained modest. Finance Minister Nirmala Sitharaman proposed a significant change to the new tax structure in the Union Budget 2023 to promote more adoption. These modifications will take effect for the fiscal year (FY) 2023–2024, also known as the assessment year (AY) 2024–2025, which runs from April 2023 to March 2024.
In practice, the new tax regime has been chosen as the default choice for all taxpayers beginning in FY24, and taxpayers who opt for the old tax regime must now express their preference in writing. How is the new income tax regime better than the old income tax regime? Do you know there are 6 tax exemptions in the default tax regime? The income tax refund maximum has been extended from Rs 5 to 7 lakh, the tax slabs have undergone reorganisation, and the new tax regime has been made the default system for everyone. The new tax system featured a reduced tax rate, there were no exemptions available. The tax-free limit has now been raised to Rs 7 lakh, but only for those who opt for the new tax.
A taxpayer can claim up to Rs 50,000 for the standard deduction, whereas every salaried individual with an income of Rs 15.5 lakh or more is eligible for a standard deduction of Rs 52,500. The basic exemption ceiling has been raised to Rs 3 lakh under the new tax system. The new tax does not exempt savings plan investments, however, it does not apply to income over Rs 7.5 lakh after standard deduction. In contrast, under the previous tax system, you would only need to pay taxes on income over Rs 5 lakh.
Employees may be eligible for a tax deduction under income tax legislation if their employer contributes to their NPS account. Section 80CCD(2) allows for a maximum deduction of 10% of the pay (Basic + DA). This tax deduction is in addition to the Section 80C and Section 80CCD(1B) deductions of Rs 1.5 lakhs and Rs 50,000 respectively. The employee’s contribution under section 80CCD(1) is combined with section 80C, nevertheless.
For revenue beyond Rs 2 crore, the Finance Ministry has lowered the highest surcharge rate from 37% to 25%. The highest tax rate will therefore decrease from its current 42.74 percent level to 39 percent.
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