NEW TAX REGIME UNDER INCOME TAX ACT

FROM A.Y. 2024-25

The New Tax Regime, introduced under Section 115BAC of the Income Tax Act, offers individual taxpayers and Hindu Undivided Families (HUFs) the option to pay income tax at reduced rates by foregoing certain exemptions and deductions. To avail this regime, the following conditions must be met:

1. Eligibility:

• Applicable to all individual taxpayers and HUFs.

2. Opting for the New Tax Regime:

• Salaried Individuals (without business income): The New Tax Regime is the default option starting from the Assessment Year (AY) 2024-25. If you wish to continue with the New Tax Regime, no additional action is required. However, if you prefer the Old Tax Regime, you must indicate this choice while filing your Income Tax Return (ITR) for the relevant financial year.

• Individuals with Business or Professional Income: To opt for the New Tax Regime, you must file Form 10-IEA before the due date of filing your ITR under Section 139(1) of the Income Tax Act. Once you opt for the New Tax Regime, you can revert to the Old Tax Regime only once in subsequent years. After reverting, you cannot opt for the New Tax Regime again in future years.

3. Foregoing Specific Exemptions and Deductions:

• By choosing the New Tax Regime, you must forgo certain exemptions and deductions available under the Old Tax Regime, including but not limited to:

• House Rent Allowance (HRA)

• Leave Travel Allowance (LTA)

• Standard Deduction (Note: A standard deduction of Rs. 50,000 is available under the New Tax Regime starting from FY 2023-24)

• Deductions under Section 80C (e.g., investments in Public Provident Fund, Life Insurance Premiums)

• Deductions under Section 80D (e.g., medical insurance premiums)

• Interest on housing loan under Section 24(b)

• Professional tax

• Entertainment allowance

• Other specific allowances and deductions

• However, certain deductions, such as employer contributions to the National Pension Scheme (NPS) under Section 80CCD(2), are still available under the New Tax Regime.

4. Tax Rates under the New Tax Regime:

• The New Tax Regime offers concessional tax rates, which are structured as follows for FY 2023-24 (AY 2024-25):

• Up to Rs. 3,00,000: Nil

• Rs. 3,00,001 to Rs. 6,00,000: 5%

• Rs. 6,00,001 to Rs. 9,00,000: 10%

• Rs. 9,00,001 to Rs. 12,00,000: 15%

• Rs. 12,00,001 to Rs. 15,00,000: 20%

• Above Rs. 15,00,000: 30%

• These rates are subject to applicable surcharges and cess.

5. Rebate under Section 87A:

• Under the New Tax Regime, a rebate of up to Rs. 25,000 is available for individuals with a total income not exceeding Rs. 7,00,000, effectively making their tax liability zero.

It`s essential to carefully evaluate the benefits and limitations of both the Old and New Tax Regimes based on your income structure and eligible deductions before making a choice.

BEFORE A.Y. 2024-25

The New Tax Regime under Section 115BAC of the Income Tax Act was introduced starting from: Assessment Year (A.Y.) 2021-22. This corresponds to the Financial Year (F.Y.) 2020-21.

Background:

• The New Tax Regime was announced in the Union Budget 2020, presented by the Finance Minister on February 1, 2020.

• It became effective for income earned in F.Y. 2020-21 and taxpayers could opt for it while filing their ITR for A.Y. 2021-22.

This regime was introduced to simplify the tax structure by offering lower tax rates, but it required taxpayers to forgo most exemptions and deductions available under the Old Tax Regime. Here are the key details and conditions for that year:

1. Eligibility: Condition for Opting the New Tax Regime from A.Y. 2021-22

• Applicable to individual taxpayers and HUFs.

• Taxpayers opting for the New Tax Regime were required to file their income tax return (ITR) within the due date specified under Section 139(1) of the Income Tax Act.

• If the return was filed after the due date (i.e., as a belated return under Section 139(4)), the taxpayer could not opt for the New Tax Regime for that assessment year.

2. Tax Rates under the New Tax Regime (A.Y. 2021-22):

• The concessional tax rates were as follows:

• These rates applied without exemptions and deductions (discussed below).

• Surcharge and cess applied as per the Old Tax Regime.

3. Opting for the New Tax Regime:

• Salaried Individuals:

• You could opt for the New Tax Regime by intimating your employer at the beginning of the financial year.

• If no intimation was given, the employer would deduct tax based on the Old Tax Regime.

• You could change your regime preference while filing your Income Tax Return (ITR).

• Individuals with Business Income:

• Required to file Form 10-IE before the due date of filing ITR under Section 139(1).

• Once opted, you could revert to the Old Tax Regime only once in subsequent years.

• After reverting, you could not opt for the New Tax Regime again.

4. Other conditions for Availing the New Tax Regime:

By opting for the New Tax Regime, you were required to forego most exemptions and deductions under the Income Tax Act, such as:

Deductions Not Allowed:

1. Standard Deductions:

• Rs. 50,000 for salaried individuals.

2. Exemptions for House Rent Allowance (HRA).

3. Leave Travel Allowance (LTA).

4. Deductions under Chapter VI-A:

• Section 80C (e.g., PPF, LIC premiums, ELSS).

• Section 80D (medical insurance).

• Section 80E (education loan interest).

• Section 80G (donations to charity).

• Section 80TTA/80TTB (interest on savings accounts).

5. Interest on housing loan under Section 24(b) for self-occupied property.

6. Professional tax deduction.

Deductions Allowed:

1. Employer`s contribution to the National Pension System (NPS) under Section 80CCD(2).

5. Rebate under Section 87A:

• Rebate of up to Rs. 12,500 was available for individuals with a total income not exceeding Rs. 5,00,000 under the New Tax Regime.

• Effectively, no tax was payable for income up to Rs. 5,00,000.

6. Key Considerations:

• Opting for the New Tax Regime was beneficial primarily for taxpayers who:

• Had minimal or no eligible deductions/exemptions.

• Preferred simplified tax calculations over claiming deductions.

• Taxpayers with significant investments or eligible expenditures (e.g., under Section 80C, housing loans) often found the Old Tax Regime more beneficial.

Comparison of Old vs. New Tax Regime (A.Y. 2021-22):

For A.Y. 2021-22, taxpayers needed to calculate their tax liability under both regimes to decide which one offered greater savings.