Under the revamped new tax regime, no tax would be levied for income up to Rs 3 lakh.
Income Tax Regime: Finance Minister Nirmala Sitharaman proposed a significant change to the new tax structure in the Union Budget 2023 to promote more adoption. These modifications will take effect from the financial year 2023–2024.
The budget 2023-24 had announced the tax rebate whereby no tax would be levied on those with annual income of up to Rs 7 lakh under the new tax regime. The move which experts felt was a push for salaried class taxpayers to switch to a new tax regime where no exemptions on investments is provided.
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Under the revamped new tax regime, no tax would be levied for income up to Rs 3 lakh. Income between Rs 3-6 lakh would be taxed at 5 per cent; Rs 6-9 lakh at 10 per cent, Rs 9-12 lakh at 15 per cent, Rs 12-15 lakh at 20 per cent and income of Rs 15 lakh and above will be taxed at 30 per cent.
Further, a Rs 50,000 standard deduction was allowed under the new regime.
How To Save Income Tax Under New Tax Regime?
Vishal Raheja, MD, InvestoXpert.com, shared, “This year’s budget introduced a new tax regime allowing taxpayers an exemption of up to 7 lakhs on their income. Salaried individuals, however, can claim an extra Rs. 50,000 rebate catapulting their limit to a gross of Rs.7.5 lakhs. But beyond that it may seem like there’s little room for tax exemption.”
Tax Saving Investments
However, Raheja added that taxpayers can still take advantage of a few tools. For instance, section 80 CCD(2) exempts NPS contributions of up to 10% (14% for government employees) of basic pay plus dearness allowance from income tax. Further EPF contributions up to 12% of salary are non-taxable under the new regime.
“If salaried individuals are keen on using the new tax regime they must focus on restructuring their portfolio. Previously, PPF was a major instrument used for tax savings. However, as per the latest regulations, PPF contributions will be eligible for tax. But, the maturity amount of any PPF account and the interest earned will remain non-taxable,” Raheja said.
He added another good investment option for salaried individuals for saving taxes are investment-cum-life insurance policies.
“Such investment tools can reap help save a substantial amount of tax and are preferred by high networth individuals. The only caveat in it is that ULIP policies are still taxable.”
“Finally, salaried individuals who have rented out their properties can avail a 30% standard deduction against the annual property value. Annual value of a property is calculated by determining the actual value of the property minus municipal taxes paid on the same,” Raheja underlined.
Meanwhile, the government has brought in amendments to the Finance Bill 2023, which has given ‘marginal relief’ to those taxpayers with annual income a little over Rs 7 lakh.
Although the government has not specified the threshold income which would be eligible for marginal relief, tax experts said as per computation, individual taxpayers with income of Rs 7,27,777 would be benefited by this relief.
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