By Ravi Garg
As filing of Income Tax Returns for FY 2022-23 is knocking on the door, some people are still confused about which tax regime they should choose to pay taxes. Here is the answer to all of your questions.
What is meaning of Old and New Tax Regime?
While calculating income tax, government has given an option to certain class of taxpayers to choose the old tax regime or new tax regime. If a taxpayer opts for Old Tax Regime, it means s/he is eligible to claim deductions mentioned in Chapter-VIA of Income Tax Act i.e. section 80C to 80U and other deductions like standard deduction, house rent allowance, interest on home loan, etc., are also available. If the taxpayer chooses to opt for the new tax regime then deductions as mentioned for old tax regime are not available. The only deduction allowed in the new tax regime for FY 2022-23 is Section 80CCD(2) i.e. employer’s contribution to employee’s EPF account.
Now the question arises, then why a person should choose the new tax regime?
The answer is Income Tax Slab Rates. Income Tax Rates in the new tax regime are less than the old tax regime.
What are the slab rates under Old and New Tax Regimes for the FY 2022-23 i.e. AY 2023-24?
|Net Taxable Income||Tax rate under Old Tax Regime||Tax rate under New Tax Regime|
|0 to Rs 2,50,000||Nil||Nil|
|Rs 2,50,000 to Rs 5,00,000||5%||5%|
|Rs 5,00,000 to Rs 7,50,000||20%||10%|
|Rs 7,50,000 to Rs 10,00,000||20%||15%|
|Rs 10,00,000 to Rs 12,50,000||30%||20%|
|Rs 12,50,000 to Rs 15,00,000||30%||25%|
|Above Rs 15,00,000||30%||30%|
In both the options, rebate from tax under section 87A amounting to Rs 12,500 is available if the net taxable Income of taxpayer is below Rs 5,00,000.
Who is eligible to choose New Tax regime?
All the individual taxpayers and HUFs having business income are allowed to opt for new tax regime. Therefore, individuals having income other than business can also opt for New Tax regime but HUFs can opt for new tax regime only if they have business income.
What needs to be done to choose new tax regime?
There are two scenarios which need to be seen-
Scenario 1- Taxpayer does not have any income from business & profession
If the taxpayer does not have any income from business or profession, then s/he just needs to select the New Tax Regime Option while filing the Income Tax Return. No separate form needs to be filed.
Scenario 2- Taxpayer has income from Business & profession
If the taxpayer has income from business & profession then s/he needs to file Form 10IE on income tax portal BEFORE filing of the income tax return. Date of filing of Form 10IE and acknowledgement number of the form needs to be filled in Income Tax Return.
What is the purpose of government to launch new tax regime?
In order to do tax saving, people are forced to invest certain amount of their money on a lock in period investment. For example- a 5 year FDR is eligible for deduction under section 80C. Further, there are only fewer options available for investment which are eligible for tax saving. Therefore, government announced the new tax regime to allow people to invest their money as they like to invest. It gives more liquidity in the hands of people, which allows them to use their money as per their choice.
Is there any risk for the economy associated with the New Tax Regime?
As discussed in above para, new tax regime allows people more liquidity in their hands and hence they will use the money as they desire. Under Old Tax Regime, people were saving their money in order to save on taxes. Now, since they have more liquidity in their hands, it may possible that instead of saving the money people just spend their money in the market. If the people will not save for their future and for their retirement, they will become a financial liability for the government in the future. Therefore, all the people who are opting for the new tax regime should also invest as per their choice and save the money for their future.
(Ravi Garg is an associate Chartered Accountant, who has completed his CA at just the age of 21 years).