Arjuna (Fictional Character): Krishna, Honourable Finance Minister Mrs Nirmala Sitharaman had declared the Finance Budget of 2023-24 on 01st February in the Lok Sabha. Why there is a lot of discussion going around the Old Tax Regime and New Tax Regime of the Income Tax regime?
Krishna (Fictional Character): Arjuna, in this Budget Honourable Finance Minister, has brought many changes in the New Tax Regime of Income tax but no new changes were announced for the Old Tax Regime.
Arjuna (Fictional Character): Krishna, please explain the Old Tax Regime of the Income Tax Act.
Krishna (Fictional Character): Arjuna, the old and new scheme applies to Individuals and HUF. In the old scheme, the taxpayer can claim deductions of Sections 80C, and 80D and deductions under other sections like Interest paid on Housing Loans, LIC Premium Paid, PPF Contribution etc. The applicable tax Rate under the old tax regime is as follows:
- If Income is up to 2,50,000- a Nil rate of Tax is applicable.
- If Income is between 2,50,001 and 5,00,000- Tax at the rate of 5% is applicable.
- If Income is between 5,00,001 and 10,00,000- Tax at the rate of 20% is applicable.
- If Income is above 10,00,000- Tax at the rate of 30% is applicable.
Under the old scheme Rebate u/s 87A is allowed up to an income of Rs.5,00,000 i.e. No Tax is required to be paid if income is up to Rs.5,00,000.
Arjuna (Fictional Character): Krishna, How can taxpayers opt for a new scheme or an old scheme?
Krishna (Fictional Character): Arjuna, In the budget, it is announced that the new tax regime has been made default tax regime in this year’s budget, but the taxpayer will have the option to opt for the old and new tax regimes. Previously, the old scheme was the default scheme and taxpayers had the option to opt for the new scheme.
Arjuna (Fictional Character): Krishna, please explain the new tax regime of the Income Tax Act.
Krishna (Fictional Character): Arjuna, the new regime has been brought with the motive to bring relief to the middle class. In the New scheme, the rate of tax is less as compared to the old scheme of taxation but the catch here is we cannot claim various deductions such as Interest paid on Housing Loans, LIC Premium Paid, PPF Contribution, etc. which were allowed under the old scheme of taxation. The applicable tax rates from FY 2023-24 under the new scheme of taxation are as follows:
- If Income is up to 3,00,000 - a Nil rate of Tax is applicable.
- If Income is between 3,00,001 and 6,00,000- Tax at the rate of 5% is applicable.
- If Income is between 6,00,001 and 9,00,000- Tax at the rate of 10% is applicable.
- If Income is between 9,00,001 and 12,00,000- Tax at the rate of 15% is applicable.
- If Income is between 12,00,001 and 15,00,000- Tax at the rate of 20% is applicable.
- If Income is above 15,00,000- Tax at the rate of 30% is applicable.
Under the New scheme Rebate u/s 87A is allowed up to an income of Rs.7,00,000 i.e. No Tax is required to be paid if income is up to Rs.7,00,000. Also, in the new tax regime, the highest surcharge has been restricted to 25%.
Arjuna (Fictional Character): Krishna, which scheme is more beneficial for a middle-class Person?
Krishna (Fictional Character): Arjuna, suppose the Total Income of the taxpayer is 6,50,000 and he has no deductions and Investments then in the case of the old scheme he would be liable to pay a tax of Rs. 42,500 without any rebate but in case of New Tax regime Rebate is granted up to 7,00,000 thus Zero tax is payable in case the total income is 6,50,000. Thus, we can say that the new tax regime is beneficial for taxpayers who did not have any kind of deductions and whose total Income is up to Rs 7,00,000.
Arjuna (Fictional Character): Krishna, what should one learn from this?
Krishna (Fictional Character): Arjuna, by bringing changes in the new tax regime the government is gradually trying to demolish the existence of the old tax regime. The Government is trying to bring all measures to motivate the taxpayers to opt for a new Tax regime. The Taxpayers should calculate their tax liability under the old tax regime and new tax regime and select the appropriate option which results in minimum tax liability.
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