The new tax regime, introduced in Budget 2020 and modified in Budget 2023, is a major overhaul of the income tax regime in India. It aims to simplify the tax structure, reduce the compliance burden, and provide relief to the taxpayers. However, it also comes with certain trade-offs, such as the removal of many exemptions and deductions that were available under the old regime. Therefore, it is important for the taxpayers to understand the features, benefits, and drawbacks of the new regime and make an informed choice between the two regimes.
The income tax new regime offers concessional tax rates for different income slabs, ranging from 0% to 30%. The tax exemption limit has been increased to ₹3 lakhs, and the new tax slabs are as follows:
However, the new income tax regime also has some drawbacks that must be considered before opting for it. They include:
The new income tax regime offers lower tax rates and higher exemption limits, but eliminates many exemptions and deductions that can reduce taxable income. Taxpayers should weigh the pros and cons of both regimes to choose the one that suits their income profile and financial goals better.
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The new tax regime is a simplified tax system with four income tax slabs and fewer deductions and exemptions, compared to the previous tax system, which had seven income tax slabs and more deductions and exemptions.
The key changes introduced in the new tax regime are the reduction in the number of income tax slabs from 7 to 4, and the removal of some deductions and exemptions.
Individuals and businesses should prepare for the transition to the new tax regime by comparing their tax liability under both regimes, reviewing their deductions and exemptions, and making necessary changes in their income sources and tax-saving instruments.
Opting for the new tax regime may lower the tax rates and simplify the tax filing, but also reduce the deductions and incentives for savings.
To maximise the benefits under the new tax regime, compare and choose the best regime, optimise or switch your deductions, and claim the interest, standard, and rebate benefits in the new tax regime.