The Benefits of Selecting the New Tax Regime FY24
New Delhi : The Union Budget 2023 has implemented various measures to enhance the appeal of the new income tax system and make it more lucrative, especially for new taxpayers. Under the new system, the default option will be the New Tax Regime FY24 - meaning that taxpayers who take no action will have their taxes calculated according to the new regime. Conversely, those who wish to adhere to the old regime must explicitly state their preference to do so. This indicates a strategic shift from the current setup where the old system is the default option, and individuals must proactively switch to the new system.
This switch is expected to increase the adoption of the new tax regime among taxpayers. But what about the benefits of the new tax regime—how does it fare against the old tax regime?
Let’s take a closer look to understand the features of the new tax regime and how one stands to benefit from it.
What is the New Tax Regime 2023-24?
Finance Minister Nirmala Sitharaman recently announced the new income tax regime 2023-24 in the union budget presented in Feb 2023. To summarise the new tax regime, the total number of income tax slabs have been brought down to 5 from 6 along with the revisions in their caps. Rebate has also been pushed to Rs.7 Lakh instead of Rs.5 Lakh, which reduces the tax that you must pay if the taxable income is below Rs.7 Lakh. One more highlight of this budget is the inclusion of standard deduction of Rs.50,000(regardless of your income) in the New Tax Regime 2023-24 which was previously applicable only under the Old Regime.
What are the tax slabs under the new regime?
The new tax regime offers six tax slabs, starting from incomes 0 to 3 Lakh at 0% tax at a tax rate rising by 5 percentage points for incremental income of Rs.3 Lakh each up to Rs.15 Lakh and above.
Income Tax Rate
0 to 3 Lakh 0%
3 to 6 Lakh 5%
6 to 9 Lakh 10%
9 to 12 Lakh 15%
12 to 15 Lakh 20%
Above 15 Lakh 30%
Benefits of Selecting the New tax regime FY24
1. Revision of slabs
In the presented New Tax Regime FY24, the existing blocks of Rs.2.5 Lakh per slab have been broadened by Rs.50,000 and revised to Rs.3 lakh each. This means for Rs.3 to Rs.6 Lakh you pay 5% tax, for Rs.6 to 9 Lakh you pay 10% tax and so on.
2. Rebate on Rs.7 Lakh
The above tax slabs are applicable for individuals with incomes above Rs.7 Lakh as opposed to the Rs.5 Lakh per the previous regime. As income tax is levied on incremental slabs, the tax slabs are not calculated at a flat rate but are divided into slabs. Consider the below example:
Example: For an income of Rs.10 Lakh, income tax would be applicable only on the income above Rs.7 Lakh on the remaining Rs.3 Lakh. Then too, the income tax will be calculated per the slab of Rs.3 to 6 Lakh which is 5%. Accordingly, the tax would be Rs.15,000/- only.
3. Reduced Surcharge at a cap of 25%
This is good news for the high-income taxpayers whose annual earning is above Rs.50 Lakh. Per the Budget 2023, the maximum surcharge that can be levied on an individual’s income has been restricted to 25% if you opt for the new tax regime FY24.
Surcharge is the additional charge levied on higher income earning individuals over and above tax. It is levied on the tax payable, and not on the income generated. Consider the below example:
Example: If someone has an annual income of Rs.1 Crore, and they pay a tax of Rs.3 Lakh, the surcharge would then be 10% of Rs. 3 Lakh which is Rs.30,000.
4. Inclusion of Standard Deduction
Standard deduction was introduced in the budget of 2018 as a relief for individuals earning a salary or pension income as an exemption of transport allowance and medical expenses. Standard deduction, which was available only in the Old Regime, has now been included in the New Regime as well. The standard deduction is a flat deduction of Rs.50,000/- from your income, the remaining of which is then taxable. This tax benefit can be claimed irrespective of the actual amount spent on Transport Allowance and Medical Allowance.
Additional Exemptions and Deductions in the New Regime
● A specially abled person can claim tax exemption on transport allowance
● One can claim the cost of travel on tour or transfer or conveyance expenditure incurred as part of employment
● Under Section 24, one can claim tax exemption on the interest amount incurred on Home Loan of a let-out property
● One can claim exemptions on gifts up to Rs.5000
● One can claim under deduction for employer’s contribution to NPS account and for additional employee cost
Whether the old tax vs the new tax regime is better is highly subjective and requires a case to case study. To learn more about income tax payable by you, reap the benefits of income tax calculator for ease of calculations.
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