INCOME TAX – PART 2 NEW TAX REGIME VS OLD TAX REGIME  

New tax regime was introduced in 2020 budget with concessional tax-rates as an option. However, in new tax regime, one could not claim deductions like HRA, LTA, 80C, etc. 

This led to a smaller number of taxpayers opting for this regime.

Hence, in Budget 2023, to make the new tax regime more lucrative, the following key changes were introduced

• Tax Rebate Limit Raised: To ₹7,00,000 from ₹ 5,00,000 
• Persons with income < ₹7 lakhs need not invest anything to claim exemptions & entire income is tax-free, irrespective any investment made.
• While this leads to higher consumption power does not allow investment schemes to avail tax- exemptions.
• This may be a negative point for those who plan retirement from salaried job before fifty, but with changed scenario of both husband & wife earning.

Important points one should understand is

• To get an in-depth knowledge on PERSONAL FINANCE MANAGEMENT &
• Clear balancing of combined financial goals & individuals’ financial freedom
•   From this year, the New-Regime has been made as default system, but however one can exercise their option to choose old regime
• For the full details of various available deductions one can check the IT ACT rules under chapter VI A (check the following link to get more information https://cgda.nic.in/adm/circular/Income%20Tax-circular-10-01-2023.pdf )

List of few Exemptions and Deductions – Old Tax Regime

• House Rent allowance
• Leave Travel Allowance
• A standard deduction of Rs 50,000 is made available for all salaried individuals
• Deductions available under Section 80TTA/80TTB on interest earned from savings account deposits
• Entertainment allowance deduction and professional tax for government-sector employees
• Tax-saving investment deductions under Chapter VI-A (80C,80D, 80E,80CCC, 80CCD, 80D, 80DD, 80DDB,, 80EE, 80EEA, 80EEB, 80G, 80GG, 80GGA, 80GGC, 80IA, 80-IAB, 80-IAC, 80-IB, 80-IBA, etc) (Except, deduction under Section 80CCD(2)—employers contribution to NPS, and Section 80JJA) and so forth. These well-known tax-saving investment options include the National Pension System (NPS), Equity Linked Savings Scheme (ELSS), Public Provident Fund (PPF), and a tax break given on insurance premiums.
• As per sub-section (2) of section 80CCD, a deduction can still be claimed, which is basically an employer’s contribution towards an employee’s account in the National Pension System (NPS) and section 80JJAA in case of new employment.
• It is necessary to note that if the employee’s contribution to EPF and NPS crosses the limit of Rs 7.5 Lakh in the financial year in question, then such an employee will be liable to pay tax.
• Tax relief on interest towards home loan payment for a property which is self-occupied or vacant u/s 24
• Deduction of Rs 15000 applicable for family pension under clause (ii a) (Section 57)

List of Exemptions – New Tax Regime

• Income received from Life Insurance
• Agricultural Income of an individual
• Standard reduction on rent
• Leave encashment on an individual’s retirement
• Voluntary Retirement Scheme (VRS) proceeds up to Rs. 5 lakhs
• Retrenchment compensation
• Death cum retirement benefit
• Money obtained in the form of an educational scholarship

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