The new financial year 2023-24 is here, and if the new tax regime is what works for you , know that it offers some tax benefits too. Even if it doesn’t, it may make sense to consider these benefits before deciding. Earlier, the taxpayer had to opt for the new regime on or before the due date of filing of return. However, Budget 2023 has made the new income tax regime the default option from FY2023-24, although the choice to avail of the old tax regime still exists.
The new tax regime came into force in Budget 2020-21 and does not offer any tax deduction or exemption benefits ostensibly, except the standard deduction of Rs 50,000 that was introduced in Budget 2023-24. However, many taxpayers may be unaware that the new tax regime also offers certain other benefits.
In FY24, those who opt to stay in the new tax regime will also get the standard deduction of Rs 50,000 under section 16 (IA) of the Income-tax Act 1961. Until FY23, the standard deduction was only available under the old tax regime.
However, this is not available for all. Abhinay Sharma, the managing partner at ASL Partners, a law firm, says the standard deduction of Rs 50,000 is available only to those taxpayers who have earned income under the head ‘Income from salaries’ during the relevant financial year.
Subscribers to the new tax regime get a rebate under Section 87A up to 100 per cent of the amount of income tax payable on a total income not exceeding Rs 7 lakh. So, a salaried individual with a total income, excluding capital gains, below Rs 7 lakh will effectively have zero tax liability.
Says Parth D. Shah, fellow chartered accountant (CA) at The Institute of Chartered Accountants of India (ICAI) and founder of Ahmedabad-based Parth D Shah & Co., a tax consultancy firm: “Salaried employees who have recently started earning and do not have enough funds to make an investment in tax-saving instruments or do not have any housing loan can optimise their tax costs by opting for the new tax regime instead of going with the old one.”
If the employer provides a car to the employee for official and personal use, the same is taxed “concessionally”. The taxable value is taken at Rs 1,800 per month, where the car’s cubic capacity does not exceed 1.6 litre and expenses beyond Rs 2,400 per month; where it exceeds 1.6 litre, Rs 900 per month is added, and a driver is also provided.
“Where an employee uses his own car for official and personal purposes, the taxable value is taken at actual expenses reimbursed to the employee as reduced by Rs 1,800 per month, where the cubic capacity of the car does not exceed 1.6 litre and Rs 2400 per month; where it exceeds 1.6 litre, Rs 900 per month is deducted where the driver’s cost is also reimbursed,” says Kuldip Kumar, personal tax expert and former national leader at Global Mobility Practice, PwC India.
However, “where the employee claims higher use of the car for official purposes, then a higher deduction is allowed subject to maintenance of specified documentation. It applies in both the cases of the old and new regimes,” Kumar adds.
In the case of family pensioners, “a standard deduction of Rs 15,000 will be available under the new tax regime. Income for a family pensioner is taxed under the head ‘Income from other sources’,” says Shah.
Family pension under Section 57 (IIA), up to 33.33 per cent or Rs 15,000, whichever is less, is eligible. Explains Shah: “Under the income from other sources, family pension is taxable u/s 57(iia). However, a deduction of 1/3rd of the family pension up to Rs 15000 is allowed under the old tax regime; the same deduction is now available under the new tax regime in Budget 2023.”
According to Roopal Bajaj, private client leader, Singhania & Co., a law firm, taxpayers are eligible for a standard deduction against rental income, up to 30 per cent of the annual value of the let-out property, leave encashment on retirement, a deduction up to Rs 20 lakh for gratuity received by non-government employees, and employer’s contribution to Employees’ Provident Fund (EPF) and superannuation accounts.
Moreover, daily allowance to meet the charges incurred by an employee on account of absence from his normal place of duty and employers’ contribution to the National Pension System (NPS) under Section 80CCD (2) are allowed for tax benefits even under the new regime, according to Shah.
Note that the interest and maturity proceeds from schemes such as Public Provident Fund (PPF) and Sukanya Samriddhi account and life insurance policies remain tax-exempt for individuals under both tax regimes