Compare your tax under the Proposed New regime and also under the Current Provisions of Old regime and New Regime
The key features of the Optional New Provisions (Section 115BAC of the Act) are summarised as under:
- Optional New regime is introduced by Finance Act 2020 while the Proposed New Regime is introduced under the Finance Bill 2023 for individuals and HUF with modified tax slabs and rates. On satisfaction of certain prescribed conditions, an individual or HUF may opt to compute tax in respect of total income (without considering prescribed exemptions/ deductions), as per the new slab rates, instead of the existing tax regime.
- The choice of the New Regime and Proposed New Regime comes with a few pre-requisite conditions such as:
Foregoing prescribed exemptions:
(i) Leave travel concession [section 10(5) of the Act]
(ii) House rent allowance [section 10(13A) of the Act]
(iii) Certain allowances [section 10(14) of the Act] except the below allowance with some minor modification
(a) Transport Allowance granted to a divyang employee to meet expenditure for the purpose of commuting between place of residence and place of duty
(b) Conveyance Allowance granted to meet the expenditure on conveyance in performance of duties of an office
(c) Any Allowance granted to meet the cost of travel on tour or on transfer
(d) Daily Allowance to meet the ordinary daily charges incurred by an employee on account of absence from his normal place of duty
(iv) Allowance for income of minor [section 10(32) of the Act];
(v) Exemption such as free food and beverage through vouchers provided to the employee.
Foregoing prescribed deductions:
(i) Optional New Regime does not allow Standard deduction, deduction for entertainment allowance and employment professional tax (section 16 of the Act) for the FY 2022-23. However, the proposed new regime under Finance bill 2023 allows standard deduction up to INR 50,000 for salaried individuals and pensioners.
(ii) Interest under section 24 of the Act in respect of self-occupied or vacant property referred to in section 23(2) of the Act
(iii) Loss under the head income from house property for rented house shall not be allowed to be set off under any other head and would also not be allowed to be carried forward for set off in future years
(iv) Deduction from family pension [section 57(iia) of the Act] not allowed for new tax regime for the FY 2022-23. However, the proposed new regime under Finance bill 2023 allows family pensioners to claim a standard deduction for INR 15,000 for FY 2023-24
(v) Specified deductions under chapter VI-A of the Act (such as section 80C, section 80D, Section 80G, etc.) except deduction on account of employer’s contribution toward new pension scheme [section 80CCD(2) of the Act]
- Proposed changes specific to section 115BAC under Finance bill 2023
(i) Enhancement of basic exemption limit from INR 2.5 lakh to INR 3 lakh and also changes in the Income tax slabs
(ii) No tax payout for income up to INR 7 lakh on account of 87A rebate for resident individuals
(iii) Abolition of Highest surcharge rate of 37% for income > INR 5 Crore. Surcharge of 25% to be levied on all income > INR 2 Crore. Resulting in reduction of highest effective tax rate to 39% from 42.744%
(iv) New tax regime to be considered as default regime, however the taxpayer (with no PGBP income) may opt for the old tax regime at the start of tax year or while filing original tax return by due date
- The Optional New regime and the Proposed New Regime (subject to above prescribed conditions and compliances) can be exercised every year, if the individual or HUF does not have business income. In case of individual or HUF having business income, option once exercised would be applicable for all subsequent years (with a one-time option to change), except where such person ceases to have any business income.