Currently, two tax regimes are available for income taxpayers who choose to select one. According to tax experts, the new tax system offers eight types of benefits. Under this system, taxpayers are not required to pay any tax if their income is up to Rs.7 lakh. Let me now explain these eight benefits in detail.
As the new financial year begins in April. 2024, employees are required to inform management of their chosen tax system. However, many people are struggling to decide whether to continue with the old tax system or switch to the new one. If an employee does not choose an option, the new tax system will be the default. Tax experts suggest that the new tax system offers eight types of benefits, which will simplify the tax structure and lower the tax rate. Let’s learn more about the details.
Lower Tax Rates
Under the new tax regime, tax rates will be much lower. Taxpayers can benefit more from this change, according to tax experts.
Simple Tax Structure
Under the new tax system, paying tax on income up to Rs. 3 lakhs is unnecessary. For those earning between Rs. 3-6 lakhs, a 5% tax rate applies. However, a tax rebate is available through section 87A, so no tax is needed. For those with income between 6-9 lakhs, a 10% tax rate applies. But Rs. 7 lakhs under section 87A tax rebate is available, and no tax is payable up to 7 lakhs. For income levels above seven lakhs, a 10% tax rate applies. For those earning between 9-12 lakhs, a 15% tax rate applies. For those earning between 12-15 lakhs, a 20% tax rate applies. For income levels above 15 lakhs, a 30% tax rate will apply.
Tax Deductions
The new tax regime eliminates the need to track and claim tax deductions. Taxpayers will save a lot of time since there is no need to provide details of expenses and investments.
Minimum Tax Exemption Limit
Under the new tax regime, the minimum tax exemption limit has been increased from Rs. 2.5 lakhs to Rs. 3 lakhs. Those who earn more than 15 lakhs will have to pay a maximum tax of 30%.
Change in Surcharge Rate
The centre has reduced the surcharge for those who choose the new tax regime from 37% to 25% for those with an income of more than five crores.
Rebate Limit
In the old tax system, a tax rebate of Rs. 12,500 is available for those earning up to 5 lakhs. In the new tax system, a tax rebate of Rs. 25,000 is available for those earning up to 7 lakhs. Section 87A rebates are available for both tax regimes.
Standard Deduction
The standard employee deduction is Rs. 50,000 for both the old and new tax regimes.
Leave Encashment
In the new tax regime, the leave encashment limit for private employees has been increased from Rs. 3 lakhs to Rs. 25 lakhs. This means that leave encashment up to 25 lakhs is not taxable. Additionally, family pension income is exempt up to 15 thousand. Section 80CCH(2) can also be exempted if the Agniveer Corpus Fund pays the deposit.
