Starting in 2023, the Union Government is focusing on making the new tax regime more lucrative for the citizens. A major step towards the same has been the new tax regime exemption list, granting tax-free status to everyone earning less than ₹7 lakhs per annum.
This is a significant increase from the old tax regime that granted an exemption to individuals earning under ₹5 lakhs per year. But how can you avail of this benefit? Traverse with us through the world of the new tax regime and understand the benefits it holds for you!
The new regime tax slab has introduced six income brackets, up from five in the old regime. According to the latest avenues, earning less than ₹3 lakhs per annum exempts you from paying tax.
While individuals with incomes above ₹3 lakhs will be taxed according to the income brackets, there is a catch.
Here’s an illustration to better understand how this works:
Suppose Person A has a gross income of ₹6,20,000. Combined with the standard deductions worth ₹50,000, the net taxable income comes down to ₹5,70,000. Hence, the total tax amount levied is ₹25,000. But with section 87A providing a tax rebate of up to ₹25,000, it is possible to pay zero taxes starting from the financial year of 2023-24.
The only condition is you opt for the new tax regime while filing your ITR for the year.
The new tax regime offers a great option for individuals with an annual salary below ₹7 lakhs. However, there was a problem after the initial days of the announcement of the new tax regime. People with income marginally over ₹7 lahks per annum were not eligible for the tax rebate. For instance, if your annual salary exceeded the ₹7 lakh mark, you received no benefits. So, even if you earned ₹7,00,200, you incurred a hefty tax of ₹25,000.
To combat this, the government amended the Finance Bill. Now, the total tax liability for such individuals follows a simple principle - the amount cannot be higher than the income that exceeds ₹7 lakhs. This alteration provided a great way for individuals earning up to ₹7,27,000 to avail of significant tax breaks.
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The new tax regime slab is a viable option for individuals earning less than ₹7 lakhs per annum. The only limitation is losing out on significant tax deductions and exemptions.
The new tax regime offers tax rebates up to ₹25,000 for incomes below ₹7 lakhs per annum, compared to the limit of ₹5 lakhs in the old regime.
The new tax regime can benefit you if your income, including profits from other avenues, totals up to 7 lakhs per annum.
With the new tax regime, you can no longer avail of over 70 deductions offered by the old regime. All you have is a standard ₹50,000 deduction available.
