New Tax Regime Income Tax, Benefits, Key Features

The new tax regime introduced under Section 115 BAC of the Income Tax Act has brought significant changes to the taxation system in India. This regime offers lower tax rates but comes with the trade-off of giving up various exemptions and deductions.

New Tax Regime Income Tax

The new tax regime, governed by Section 115BAC of the Income Tax Act, presents an alternative to the traditional old tax regime. In comparison to the previous regime, the new one offers reduced tax rates.

The new tax regime features five income tax slabs ranging from 0% to 30%, with rates varying based on income levels.

Taxpayers opting for the new regime cannot claim various deductions under Section 80C and other exemptions like LTA, HRA, and home loan deductions.

Key Features of the New Tax Regime

The key features of the New Tax Regime in India are:

  • Tax Slabs: The new regime offers lower tax rates compared to the old regime. Currently, the slabs are:
    • Up to Rs. 3 lakh: Nil (No tax)
    • Rs. 3 lakh – Rs. 6 lakh: 5%
    • Rs. 6 lakh – Rs. 9 lakh: 10%
    • Rs. 9 lakh – Rs. 12 lakh: 15%
    • Rs. 12 lakh – Rs. 15 lakh: 20%
    • Above Rs. 15 lakh: 30%
  • Standard Deduction: A fixed deduction of Rs. 50,000 is available for salaried individuals and pensioners. This replaces the need to claim various deductions under the old regime.
  • Limited Deductions and Exemptions: Unlike the old regime, popular deductions like those under Sections 80C (Investments), 80D (Medical Expenses), HRA (House Rent Allowance), and LTA (Leave Travel Allowance) are not allowed. However, some deductions, such as contributions to NPS (National Pension System) and Agniveer Corpus Fund, remain available.
  • Rebate under Section 87A: This section offers a tax rebate of up to Rs. 12,500 for individuals with a total income not exceeding Rs. 5 lakh. This benefit applies to both the new and old regimes.
  • Default Option (Effective from April 1, 2024): The new tax regime has become the default option for filing tax returns. If you want to utilise the old regime with its deductions, you must explicitly choose it during filing.

New Tax Regime Income Tax Benefits 

There are several benefits to opting for the new tax regime in India:

New Tax Regime Income Tax

  • Simplified Tax Filing: The new regime streamlines the tax filing process by eliminating the need to collect and manage paperwork for various investments and expenses that qualify for deductions under the old regime.¬†
  • Potentially Lower Tax Liability: Depending on your income level and the deductions you typically utilise under the old regime, you might end up paying less tax under the new regime’s structure. Here’s why:
  • Lower Tax Rates: The new regime offers lower tax rates compared to the old regime across most income brackets.
  • Standard Deduction: The standard deduction of Rs. 50,000 replaces the need to claim numerous smaller deductions, which can be beneficial if the sum of your usual deductions falls below this amount.
  • Increased Take-Home Pay:¬† The standard deduction simplifies tax calculations, reducing paperwork and complexity. This can result in a higher net salary for individuals.
  • Focus on Investments (for some): New tax regime offers flexibility in investment choices for individuals not using many tax-saving deductions.

How to switch from the old to the new tax regime?

The scenario for switching between regimes has changed. Here’s the current situation:

  • New Regime as Default: The new tax regime has become the default option for filing tax returns. This means you don’t need to take any specific action to be under the new regime.
  • Switching to Old Regime: If you want to switch from the new regime to the old regime and avail its associated deductions, you’ll need to explicitly opt for it during the tax filing process.

A general guideline for indicating your choice during ITR filing:

  • Look for a section related to “Tax Regime” or “Selection of Tax Regime” in your ITR form.
  • You’ll likely find options for “New Tax Regime (Section 115 BAC)” and “Old Tax Regime.”
  • Select the “Old Tax Regime” option if you want to switch.

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