5 Factors to Must Choose in New Tax Regime: Income Tax Return 2024

December 29, 2023
Registrationwala

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5 Factors to Must Choose in New Tax Regime: Income Tax Return 2024

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5 Factors to Must Choose in New Tax Regime: Income Tax Return 2024

December 29, 2023

Registrationwala

The New Tax Regime for the Financial Year 2024-25 has not yet been announced. It is expected to be announced in February 2024 by Finance Minister Nirmala Sitharaman.

This year because of the election, the interim budget will be passed instead of a full-year fiscal budget. This is done because the general elections are expected between March and May. So, when the new government comes to power, the budget will be presented by them.

In the article, we shared how the new tax regime is better than the old tax regime. And what are the points that taxpayers must choose in the new tax regime to save tax liability?

What is the New Tax Regime?

In the Union Budget 2020, Finance Minister Nirmala Sitharaman declared that the new tax regime is a default one that starts from 1st April 2020. The tax rates in the new regime are lower for higher income as compared to the old tax regime.

So, when you choose a new tax regime, then most of the deductions and exemptions are available under the Income Tax Act, of 1961. Check the effect of the new tax regime on the Insurance & Investments sectors here.

The new regime was made the default option for all taxpayers such as individuals, Hindu Undivided Families (HUF), and Association of Persons (AoPs).

Income Tax Slabs for New Tax Regime

Income Range	Tax Rate
Upto 3 lakhs	Nil
3 lakhs to 6 lakhs	5%
6 lakhs to 9 lakhs	10%
9 lakhs to 12 lakhs	15%
12 lakhs - 15 lakhs	20%
Above 15 lakhs	30%

Note: The income tax slab rates for the old regime are the same as the previous years’ income tax slab rates.

Factors to Choose in New Tax Regime

The factors that taxpayers must check while choosing a new tax regime are as follows:

1. Income Tax Rebate

In the budget 2023, it is announced that if the income of an individual does not exceed Rs. 7 lakhs in a financial year, is not taxable. The limit was Rs. 5 lakhs before.

A resident individual paying tax as per the new tax regime under Section 115BAC is allowed a higher amount of rebate under Section 87A if the total income is up to Rs. 7,00,000. Further, if the total income of the resident individual marginally exceeds Rs. 7,00,000, he will be eligible for the marginal rebate.

This rebate is only available for the individual residents. The Non-Resident Individuals (NRIs), Hindu Undivided Family (HUF) and the firms are not eligible for rebates.

2. Standard Deduction

The standard deduction of Rs. 50 thousand is allowed in the new tax regime which was restricted in the old tax regime. After the inclusion, tax-free income including the rebate now stands at Rs. 7 lakhs.

3. Revised Tax Slabs

The main comparison between the new tax regime and the old tax regime is based on the tax rates. The tax rates in the new regime are lower are lower as compared in the old tax regime. The taxpayers have tax relief in the new tax regime because of broader tax slabs and lower tax rates.

4. Reduced Surcharge for High Net-Worth

The surcharge rate on income over Rs. 5 crores has been reduced to 25% which earlier was 37%. This change has brought down the effective tax rate from 42.74% to 39%. All these are only in the New Tax Regime.

The surcharge rates for Individuals/ HUF/ AOP/ BOI are as follows:

Net Taxable Income Limit (Rs.)	Surcharge Rate on the Amount of Income Tax
50 lakhs to 1 Crore	10%
1 Crore to 2 Crore	15%
2 Crore to 5 Crore	25%
More than 5 Crore	37%*

Note: In budget 2023, the highest surcharge of 37% is reduced to 25% which is applicable from 1st April 2023.

Income Tax Rates Applicable on Domestic Companies

The tax rates for assessment year 2024-25 are as follows:

Domestic Company	Assessment Year 2024-25
Where its total turnover or gross receipt during the previous year 2020-21 does not exceed Rs. 400 crore	NA
Where its total turnover or gross receipt during the previous year 2021-22 does not exceed Rs. 400 crore	25%
Any other domestic company	30%

Income Tax Rates Applicable on Foreign Companies

Nature of Income	Tax Rate
Royalty received from the Government or an Indian concern in pursuance of an agreement made with the Indian concern after March 31, 1961, but before April 1, 1976, or fees for rendering technical services in pursuance of an agreement made after February 29, 1964, but before April 1, 1976, and where such agreement has, in either case, been approved by the Central Government	50%
Any other income	40%

5. Higher Leave Encashment Exemption

The leave encashment amount claimed as exemption is increased to Rs. 25 lakhs from Rs. 3 lakhs. This is for the non-government employees. In leave encashment, different types of leaves are included such as causal leave, earned leave, medical leaves, holiday leaves, maternity leaves and sabbaticals.

Conclusion

To conclude, the old tax regime and the new tax regime both have their pros and cons. For example: the new tax regime does not include several dedications and exemptions such as HRA, LTA, 80C, 80D and others. On the other hand, the new tax regime is for those who want minimal deductions and want to avoid the burden of preparing the extensive tax. Choose the tax regime that fulfils your requirements.