A better look at the new tax regime

The new tax regime which will be the default one for most of the taxpayers needs to be understood deeply since more than half of the taxpayers will be automatically shifted to this dispensation with zero exemptions. While the change of tax rates and exemptions is related to the 2024-25 ie financial year from 1st April 2023, the changes will be notified under sub-section (1A) of section 115BAC of the income tax return. The new rebates are up to Rs. 3 lahks there is zero percent tax, 5 percent for 3 to 6 LPA, 10 percent for 6-9 lakh per annum, 9-12 lakh 20 percent, and 30 percent for those making above 15 lahks. While the 25 percent slab has been decreased and the second is the introduction of a standard deduction of Rs.5,0000. This somewhat makes it similar to the old tax regime, which is still optionalable for the taxpayers. Thirdly the 7. 5 LPA will be the new effective tax-free income which will include a standard deduction. But the implications don’t end here. Since all the deductions will be exempted under 80C, 8D, and 80TTA which means that all the deductions for PF and NPF schemes which had a limit of 1. 5 lakh and 50000 won’t be accepted anymore. As per the new tax regime all new tax payers will be automatically shifted in the TEE regime which allows tax exemption status to retired persons.You must be wondering what is TEE? A TEE is that money which is left after tax deduction and that money can be used for investing in PF and NPS and the earnings on the final payout will be tax free. But if you are lucky, and your investments are lower than 2 lakhs, one can get deductions for insurance policies and health cover payments. But there comes a sunny side to it all, that one doesn’t need to unnecessarily invest in mutual funds tax rebates, now there is an option to choose cheaper term insurance. Another big change is that there is not any saving in taxes but cash flow will change. One doesn’t need to put their money unnecessarily here and there. The tiresome tax filing pro has been simplified. While now there will be zero tax deductions on house rent, it can be good or bad. Hence companies cannot hold taxes on workers’ dwellings and at the same time, workers can choose from cheaper accommodation and save money. Now to file taxes, one would only need to enter their gross salaries, add returns and dividends along with other income, put down your TDS and pay the advance or balance tax by 15th of June, September, December, or march of the closure year. The economic times, did some calculations to highlight the taxes on the new regime on Rs.25 lakhs and Rs.60000 ie Rs. 23000 in each cases. The real saving lies in the cash flow because one cans have on tax-deductible income of Rs. 4.5 lakh and Rs. 8. 5 lakh. The new regime is not that bad for it allows more discretionary money in spite of more tax paid for losses set off against gains. The capital gains regime could have been incorporated into the new tax regime for those who could benefit from it. It would have allowed the government to pilot work before wholesome changes in the capital regime. Let’s take n example, if all the capital gains, short and long term were taxed at 15 percent with long-term gains along with the benefit of indexation, it would have let more people adopt a simpler tax regime without being concerned about the slight variation in the rate hike. The government can still do this before massing the new regime in March 2023.Altough the 25 percent tax regime could possibly be retained and would have allowed more people to follow the old regime. But now there is a giant leap to 30 percent for income above 15 lakhs. The tapered rate would have been a better choice. Although new regime is a changer, but not a masterstroke by Sitharaman. INAV


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Srinivasan K. Rangachary

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