Middle earners may continue with old income tax regime
2 min read . Updated: 02 Feb 2023, 11:44 PM IST
PremiumThose earning ₹25 lakh per annum will save ₹34,320 in taxes if they continue under the old income tax regime.
NEW DELHI : Even as the government makes the new income tax regime attractive in the budget by offering a higher exemption limit and standard deduction, middle earners may actually prefer to stick to the old regime.
To be sure, those earning less than ₹10 lakh per annum and the super-rich with an income of ₹5 crore and above may choose the new default income tax regime, according to experts. However, central board of direct taxes chairman Nitin Gupta said the number of assessees availing all deductions by making all possible investments would be small.
Calculations by experts show that those earning ₹10 lakh or more per annum will face a tax liability of ₹54,600 under the revised new income tax regime, as against zero liability under the old regime, assuming that the individual claimed all the deductions allowed.
Those earning ₹25 lakh per annum will save ₹34,320 in taxes if they continue under the old income tax regime.
Opting for the new regime would mean foregoing a few deductions that are otherwise available to an assessee such as house rent allowance, interest on housing loan, and tax saving investments.
However, high earners with an income of ₹5 crore or more that saw a reduction in surcharge from 37% to 50% under the new income tax regime in the budget will significantly benefit from the new tax regime. For example, those with a gross total income of ₹6 crore per annum could save as much as ₹21.6 lakh in tax, calculations by Nangia Anderson LLP showed.
Gupta said not everyone makes full use of the income tax deductions and investment incentives under the old regime, and those doing so are outliers. Therefore, he said, everyone will benefit from shifting to the proposed revised personal income tax regime.
The budget proposed to allow tax rebate on income up to ₹7 lakh under the new regime, compared to ₹5 lakh offered under both the old and new income tax regimes. According to government sources, this will benefit around 100 million taxpayers that fall in the income bracket of ₹5 to ₹7 lakh.
The government also proposed to reduce the slabs to five from six, and hike the tax exemption limit from ₹2.5 lakh to ₹3 lakh. To encourage more assesses to switch to the new regime, the budget also proposed to introduce a ₹50,000 standard deduction, which was so far available only under the old regime.
While finance minister Nirmala Sitharaman announced that the new tax regime will become the default option from FY2023-24, taxpayers will continue to have the option to avail the benefit of the old tax regime.
“Due to the lower tax structure, optional nature of the scheme and full flexibility, there are only winners that will emerge from the proposed change. There are no losers as those who tend to lose, will not shift. Even if a taxpayer chooses to gain from the new scheme today and later the circumstances change, making the old scheme more beneficial, she can switch to the old scheme anytime," said a government source.
“The Revised New Tax Regime may not find popularity among the medium income group especially those who are in the habit of making tax saving investments such as life insurance and medical policies or who receive house rent allowance from their employers and pay rent for their accommodation or claim deduction of interest in housing loans etc," said Maneesh Bawa, executive director, Nangia Andersen LLP.
