Switch hit: FM Sitharaman bats for new tax regime

Finance minister Nirmala Sitharaman has given the beleaguered tax-paying middle class a shot in the arm while seeking to make the new income tax regime more attractive. She has proposed incentives for citizens to adopt or switch to the new tax regime—which she said would eventually become the default mode—without claiming any exemptions against investments.Under the proposed new regime, first introduced in 2020, an individual with an annual income of Rs 9 lakh will be required to pay Rs 45,000, or 5% of his or her income. “It is a 25% reduction over the Rs 60,000 they would otherwise have had to pay under the existing regime,” she pointed out.New Income Tax 2023 Explained: How much tax will you pay for different slabsSimilarly, an individual with an income of Rs 15 lakh would be required to pay only Rs 1.5 lakh or 10% of income, a reduction of 20% from the existing liability of Rs 1,87,500. Therefore, for those who have not made any investments to avail of exemptions, the new tax regime is an improvement over the existing scheme.The finance minister has reduced the surcharge on income tax on income of Rs 5 crore from 37% to 25%, lowering the effective tax to 39% from 42.74% in the new tax regime. This will result in net savings of Rs 22.17 lakh in tax outgo on an income of Rs 6 crore.Theoretically, if one has invested in a lot of tax-saving instruments, the old regime—where benefits against savings are allowed—would still be a better option. Using tax-saving schemes, one can avail of a deduction of up to Rs 2 lakh from taxable income against one’s interest payment on a home loan under section 24b. The amount can further increase by Rs 50,000 to Rs 2.5 lakh under section 80EE if one has bought an affordable house.Simplified tax regime will earn benefits envisaged earlier: Tapati GhoshSimilarly, one can also avail of a deduction of Rs 1,50,000 against investments in mutual funds, ELSS and a slew of instruments under Section 80C. One can further utilise an additional deduction of Rs 50,000 against investment in the National Pension System (NPS) under 80CCD and another Rs 50,000 in health insurance under 80D.In order to promote electric vehicles, the government has given a tax break in the form of deduction of up to Rs 1,50,000 against interest payments on a bank loan. Therefore, if one utilises the maximum deduction of Rs 6.5 lakh, one can avoid paying tax on an income of Rs 9 lakh. What’s more, if one is a salaried person, he/she can avoid paying tax on a maximum income of Rs 9.5 lakh using standard deduction of Rs 50,000.Light moment during Budget speech: FM says ‘replacing the old political…’, watch how House respondedA salaried taxpayer can save tax up to Rs 1,02,500; others can save up to Rs 92,500. If the tax payer is in the highest tax bracket, he or she can save tax up to Rs 2.1 lakh on the total deduction of Rs 7 lakh—or Rs 1.95 lakh if one is not a salaried person.The maximum benefit one can enjoy in the new tax regime is Rs 1.12 lakh on an income of Rs 15 lakh. Under the new regime, the tax liability on Rs 15 lakh would be Rs 1.5 lakh as against Rs 2.62 lakh in the old tax regime. But if one invests Rs 3.74 lakh in tax-saving instruments, the tax liability under both the systems would be the same.For investments more than that, the tax payer would be better off in the old system. Savings of Rs 3.74 lakh could be achieved if one invests Rs 1.5 lakh in tax saving schemes like EPF, NPS, mutual funds and other tax saving bonds, health insurance premiums of Rs 50,000 and buys a house with a loan where annual interest payment is more than Rs 2 lakh.Imported chimney, pecan nuts, horse – unusual things that found mention in Budget 2023Watch Watch: No income-tax on income of up to Rs 7 lakh and other tax details in FM Nirmala Sitharaman’s speech