On February 1, during the presentation of the Union Budget, Finance Minister Nirmala Sitharaman announced changes to the new regime of personal income tax. Sitharaman declared that the new taxation regime, established by the government, would be the default system for the financial year 2023-24.
Taxpayers who wish to retain their tax benefits under the old tax regime must declare their preference. However, failure to opt between the old and new tax regimes will affect the amount of tax deducted at source (TDS).
Under the new regime, the rebate for resident individuals has increased to Rs. 7 lakhs. Taxpayers with an annual income of up to Rs. 7 lakhs will save Rs. 33,800 in taxes due to the finance minister's rebate increase under the new income tax regime. Nevertheless, the new tax regime will require taxpayers to give up many tax deductions and exemptions available under the old tax regime.
The following are some of the deductions available under the old tax regime:
Standard deduction: Rs. 50,000 for salaried individuals (Also available in the new tax regime)
Section 80 CCD (1B): Additional deduction of up to Rs. 50,000 for the deposited amount in the NPS account.
Section 80TTA: Deduction of a maximum of Rs. 10,000 for interest income from a savings account with a bank, co-operative society, or post office for an individual or HUF.
Section 80D: Deduction on health insurance premiums.
Section 80G: Donations to eligible trusts and charities qualify for deductions.
Section 80C: Investments made in EPF and PPF, ELSS, life insurance premiums, home loan payments, SSY, NSC, and SCSS.
It is essential to note that failure to choose between the new and old tax regimes, as an employee, will result in TDS being cut at the new regime rates. A circular by the Central Board of Direct Taxes has clarified the matter. If the employee does not provide intimation, it will be assumed that the employee continues to be in the default tax regime and has not exercised the option to opt out of the new tax regime.
In such a case, the employer will deduct tax at source on income under section 192 of the Act in accordance with the rates provided under sub-section (lA) of section 115BAC of the Act, according to the notice.
