The income tax system in India consists of two main regimes: the old tax regime and the new tax regime. Here's an overview of both systems:
1. Old Tax Regime:
In the old tax regime, taxpayers can avail various deductions and exemptions under different sections of the Income Tax Act. These deductions can significantly reduce the taxable income and, subsequently, the tax liability. Some common deductions and exemptions under the old regime include:
1) Section 80C: Deductions for investments in specified financial instruments like Provident Fund, Public Provident Fund, National Savings Certificates, etc.
2) Section 80D: Deductions for payment of medical insurance premiums.
3) Section 24(b): Deductions for home loan interest.
4) Standard Deduction: A fixed deduction from salary or pension income.
5) House Rent Allowance (HRA):Exemption for house rent allowance received by salaried individuals.
New Tax Regime:
The new tax regime, introduced in Budget 2020, is default: that is, if one does not choose either, the new one becomes the norm. It offers lower tax rates but does away with most of the deductions and exemptions. The new regime aims to simplify the tax structure and make it more user-friendly. Under this regime, taxpayers can benefit from reduced tax rates without the need to calculate various deductions.
Here are some key features of the new tax regime:
1) Reduced tax rates:The new tax regime offers lower tax rates compared to the old regime, but it comes with the condition that taxpayers cannot claim many deductions and exemptions.
2) No deductions:Taxpayers under the new regime cannot claim deductions under various sections like 80C, 80D, 24(b), and more.But some deductions are allowed
What deductions are allowed in the new tax regime in 2023?
• Standard deductions of Rs. 50,000 on taxable income.
• Employer's contribution to NPS accounts of employees.
• Deductions on health insurance premiums u/ Section 80D.
• Transport allowances to Persons with Disabilities.
• Standard deduction: The standard deduction is available in the new regime as well, offering a fixed deduction from salary or pension income.
• Concessional rates: The new regime offers a range of tax slabs with lower rates, making it attractive for individuals who do not have many deductions to claim.
• The tax exemption limit for the new regime has been increased to ₹3 lakh.
• The number of tax slabs has been reduced to five in the new regime
• Taxpayers with income up to ₹7 lakh will not pay any tax in the new regime due to increased rebate.
• Taxpayers can choose between the old and new regimes based on their financial situation and preferences.
Once a taxpayer opts for the new regime, they cannot switch back to the old regime in the same financial year.
