Published on Mar 9, 2023Updated on Jul 17, 2023
The Union Budget has an impact on all sectors of society including the salaried class. The Finance Minister introduced a new tax regime this year. The previous tax regime was changed in the year 2014. The taxpayers are given the option to choose between the new tax regime and the old tax regime.
The implementation of the new income tax regime has brought about noteworthy alterations to the 2023-2024 Income Tax Slab. Notably, the basic exemption threshold has been elevated to INR 3 lakhs, and the tax rebate for salaried individuals and taxpayers has been raised to INR 7 lakhs, surpassing its previous cap of INR 5 lakhs. The below provides a comprehensive explanation of the new rates and changes to the income tax slab for the 2023-2024 tax year.
The new tax regime is optional. The previous tax regime is still in place allowing taxpayers the freedom of choice. No compulsion for switching over to the new tax regime has been enforced by the government. The taxpayers can choose for themselves as to which regime is more beneficial for them and opt for the same.
Another additional advantage of the new tax regime is that taxpayers have the flexibility to invest their money without any obligatory requirements. Under the previous tax regime, taxpayers were required to invest in tax-saving schemes and insurance regardless of whether it aided in achieving their financial goals or not. This would allow taxpayers greater flexibility in making objective-based investments that help them fulfil their financial needs.
Various instruments under the old regime did provide tax exemption but were accompanied with a lock-in time of three to five years. For example, ELSS are locked-in for a period of three years while various FDs got deduction only if they were invested for a period of five years. Hence, while deduction was available, it came up at the cost of liquidity in the near term.
The tax filing process under the new tax regime is expected to be easier with less documentation. With various tax slabs, the taxpayers get the opportunity to fit into the slab that meets their yearly income. The reduced tax rates give taxpayers more disposable income ensuring higher liquidity and increased ability to make investments that they previously could not due to lack of disposable income.
The new tax regime does not allow exemptions. This will lead to an increase in the overall taxable amount of taxpayers. For taxpayers with income up to INR 15 lakhs, the new tax regime has lower income taxes but this is at the sacrifice of exemptions and deductions available under the previous tax regime. The taxpayers would no longer be able to claim to Leave Travel Allowance, House Rent Allowance, or Savings Account Interest including those under sections 80C, 80CCC, 80CCD, 80D, 80DD, 80E, 80EE, 80G, 80GG, 80GGA, etc. For salaried individuals, the standard deduction of INR 50,000 under Section 16 shall not be available. Similarly, the deduction of home loan interest under Section 24(b) will not be allowed.
Taxpayers who invest regularly in tax-saving schemes like PPF and NPS will suffer. Household savings may also reduce as individuals will avoid investing in tax-free schemes due to the lack of availability of exemptions. There is also a chance that the insurance sector suffers as insurance companies will have to spend more marketing expenditure to attract investment from taxpayers. The real estate sector may also be hit as taxpayers preferred investing in real estate and claiming high tax deductions on the same which shall no longer be available.
The option for choice while available to salaried tax payers on a year on year basis, the same is not the case with business owners who have only one chance to choose and once chosen cannot go back to the old regime. This places unreasonable pressure on business owners to take a correct decision today while the business situation may change in the future leading to a different decision in the future. Such lack of flexibility between different tax payers may see a lower adoption of the new regime.
In conclusion, whether a taxpayer should opt for the old tax regime or the new tax regime should be decided after careful consideration. The new regime is useful for taxpayers who have just begun their careers as well as new investors. For taxpayers with income on the higher side, the old regime would be more beneficial as deductions and exemptions can be claimed. If the taxpayers want freedom of investment, the new regime would be best suited for them. Individual taxpayers can choose the tax regime annually depending on their convenience. However, the same does not apply to business income as the choice, in this case, can be changed once the business no longer exists or is closed.
Thus, whether to choose the old tax regime or the new tax regime should be decided only after a thorough evaluation of both pros and cons taking into consideration the tax payer’s needs and preferences.
During the tax season in India, it is crucial for individuals and entities to meet their investment commitments to receive tax benefits under various sections of the old tax regime. Failure to do so may result in policy lapses and the loss of tax benefits. If individuals find themselves short of funds to meet their investment commitments, they may consider taking a personal loan to fulfill their obligations.
A personal loan can help individuals meet their investment commitments quickly, ensuring they do not lose tax benefits or let their policies lapse. Depending on their eligibility, individuals can receive quick approvals and disbursement of funds into their bank accounts. Borrowed amounts can be repaid through EMIs within 12 to 60 months. By considering a personal loan, individuals can secure their investments and financial future during tax season.
You may turn to SMFG India Credit if you wish to take up a personal loan to meet your financial needs. With amounts up to INR 25 lakhs* and interest rates starting at only 11.99%* per annum, you can check out your eligibility and apply today.
DISCLAIMER: The above article is for your knowledge only and should not be construed as professional advice. Loans are disbursed at the sole discretion of SMFG India Credit. Final eligibility of every applicant will depend on a number of factors, including SMFG India Credit's policy at the time of loan application.
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*Terms and Conditions apply. Loans are disbursed at the discretion of SMFG India Credit.