New Tax Regime: You also know that the government has now given two options to taxpayers to file ITR. Many changes have also been made in the second i.e. new tax regime. If you are also adopting the new regime, then know which 6 major changes have happened before filing the return.
The Modi government implemented the new tax regime for the first time in the financial year 2020-21. Its purpose was to simplify the process of filing returns and to eliminate the tax exemptions available in the old regime. Let us tell you that 70 types of tax exemptions were abolished in the new regime. However, by reducing its rates, the government also gives an opportunity to save tax.
The biggest change in the new tax regime is that earlier you had to choose it and now it is implemented automatically by default. If you do not choose any regime, then the Income Tax Department will automatically implement the new regime. Yes, if you want to file ITR under the old regime, then you will have to choose it again. Keep in mind that if you want to take tax exemption on Income Tax Section 80C, 80D, home loan etc., then you will have to remember and choose the old regime.
From the financial year 2023-24, the Income Tax Department has also increased the rebate from Rs 5 lakh to Rs 7 lakh. Under Section 87A of the Income Tax, earlier there was no tax on income up to Rs 5 lakh and a rebate of Rs 12,500 was available. Now it has increased to 25 thousand. This means that those who choose the new regime will get a rebate of 25 thousand. In this, a standard deduction of 50 thousand will also be available and income up to Rs 7.5 lakh will be tax free.
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In the new regime, the government has also changed the tax slabs. Now only 5 slabs will be applicable instead of 6. Income up to 3 lakhs will be completely out of the tax purview. 5% tax will be levied on income from 3 to 6 lakhs. 10% tax will be levied on income from 6 to 9 lakhs and 5% tax will be levied on income from 9 to 12 lakhs. 20% tax will be levied on income from 12 to 15 lakhs and those earning more than 15 lakhs will have to pay tax at the rate of 30%.
The biggest change in the new regime is regarding the basic exemption. The government has increased the basic tax exemption limit from Rs 2.5 lakh to Rs 3 lakh. However, in the old tax regime, the basic exemption of Rs 2.5 lakh is still available. For people above 60 years of age, this exemption is Rs 3 lakh.
Even though it has been 4 years since the new regime came into effect, the benefit of standard deduction is being availed for the first time. The government has also included a standard deduction of Rs 50,000 in the new regime from 2023-24. This is the reason that after the rebate of up to Rs 7 lakh, now an additional tax exemption of Rs 50,000 is available.
The new regime gives an opportunity to save tax to both low-income earners and high net worth individuals. Earlier, the higher slab of this regime had an effective tax of 42.74 per cent after 30 per cent tax, including surcharge and other liabilities, whereas from the financial year 2023-24, it has been reduced to just 39 per cent.
