The Income Tax Department has launched a calculator on its website to help taxpayers determine which of the two tax regimes, old or new, is most beneficial. The interface shows standard deductions, eligible deductions, and tax savings available under both regimes.
The calculator's user-friendly interface can assist taxpayers who wish to avail of exemptions under the old tax regime to determine whether those exemptions outweigh the new tax regime's lower tax rates.
In the Union Budget 2023, the tax rebate has been extended on income up to Rs 7 lakh under the new regime as against Rs 5 lakh, and the basic exemption limit has been raised to Rs 3 lakh from Rs 2.5 lakh.
How Does The Calculator Work
The taxpayer must first enter their salary in the calculator, followed by the amount deductible from gross salary in the old tax regime, not applicable in the new regime.
For instance, they can apply for travel-related exemption under section 10(5) of the Income Tax Act in the old regime. The website also lists other items for the deduction. You can also enter the interest paid on self-occupied house, income from other sources, besides salary, etc.
The taxpayer must enter all the relevant deductions that he plans to claim. Unlike the new regime, several exemptions are available under the old regime. These include investment in the Employees' Provident Fund (EPF), Public Provident Fund (PPF), medical insurance premiums, home loan repayments, children's tuition fees, education loan EMIs, house rent allowance, etc.
After you enter the deductibles in the calculator, it will show the income tax after relief, tax liability, and tax savings made under each regime side by side. Thus, the calculator eliminates the need to calculate taxpayers' tax liability separately for both regimes.
The calculator automatically calculates standard and other deductions, such as reduction in surcharge if applicable. So taxpayers do not need to know all the latest tax-related knowledge since the calculator will provide it for them.
When the benefits of both tax regimes have been analysed, a salaried employee can select between the old and new tax regimes. The taxpayer can submit an online application/declaration
to opt for the new tax regime. However, if the taxpayers wish to opt for the old tax regime in AY2024-25, or later, they must submit an application.