Salary tax FY 2023-24 Budget update

Under old-Scheme of the income tax on the salaried person – no change, your income tax is calculated based on your taxable income, which is your total income minus all eligible exemptions and deductions.

The taxable income taxed at the applicable tax slab rate given below:

• 0% on income up to INR 2,50,000 (for individuals below the age of 60 years)
• 5% on income between INR 2,50,000 and INR 5,00,000
• 20% on income between INR 5,00,000 and INR 10,00,000
• 30% on income above INR 10,00,000

There is a tax rebate for individuals with taxable income up to INR 5,00,000, under section 87A of the Income Tax Act (old – Scheme).

The rebate amount is equal to 100% of the tax liability or INR 12,500, whichever is lower under old-scheme.

Additionally, there are various deductions available under different sections of the Income Tax Act, which can be claimed to reduce the taxable income and thus, the tax liability.

Here are some of the deductions available of the Income Tax Act in India:

1. Section 80C: This section allows deductions up to INR 1,50,000 for investments made in specified savings and investment instruments, such as Public Provident Fund (PPF), Employee Provident Fund (EPF), National Savings Certificate (NSC), and life insurance premium payments.
2. Section 80CCC: This section allows deductions for contributions made to pension funds up to INR 1,50,000.
3. Section 80CCD: This section allows deductions for contributions made to the National Pension Scheme (NPS) up to INR 1,50,000.
4. Section 80D: This section allows deductions for the payment of medical insurance premium for self, spouse, and children, up to INR 25,000, and an additional INR 25,000 for medical insurance of senior citizens.
5. Section 80E: This section allows deductions for interest paid on a loan taken for higher education, without any upper limit.
6. Section 80G: This section allows deductions for donations made to specified charitable institutions, up to a certain limit.
7. Section 80GG: This section allows deductions for rent paid, if the individual does not receive any house rent allowance (HRA) from the employer, up to a certain limit.
8. Section 80TTA: This section allows deductions for interest earned on savings bank account, up to INR 10,000.
9. Section 80U: This section allows deductions for individuals with disabilities, up to INR 75,000.

Here is a point-wise explanation of exemptions on HRA, LTA, housing loan interest and principal, NPS contribution, and donation in India:

1. House Rent Allowance (HRA): HRA received as part of an individual’s salary is exempt from tax up to the lowest of the following:

• Actual HRA received
• 50% of the basic salary in case the individual is residing in a metro city (40% for non-metro cities)
• Rent paid minus 10% of basic salary

Leave Travel Allowance (LTA):

LTA received as part of an individual’s salary is exempt from tax, subject to certain conditions, such as the individual must have actually undertaken travel within India during the relevant financial year.

Housing Loan Interest:

The interest paid on a housing loan is eligible for deduction under section 24 of the Income Tax Act, up to a limit of INR 2,00,000.

Housing Loan Principal:

The principal amount repaid on a housing loan is eligible for deduction under section 80C of the Income Tax Act, up to a limit of INR 1,50,000.

National Pension Scheme (NPS) Contribution:

Contributions made to NPS are eligible for deduction under section 80CCD of the Income Tax Act, up to a limit of INR 50,000.

Donation:

Donations made to specified charitable institutions are eligible for deduction under section 80G of the Income Tax Act, up to a certain limit.

New Tax Scheme FY 2023

The new income tax scheme which was introduced in 2021, have re-introduced with a higher rebate with new slab in the budget 2023.

A Look at the Recent Changes in India’s Income Tax System for salaried income on

New – scheme FY 2023-24

Increase in rebate limit of Rs.25000.

The rebate limit under Section 87A ( which was earlier capped at Rs 12,500). This along with the change in the tax slabs have made. Hence no  if your salary income upto to INR 7 lakh.  Earlier (till fy 2021-22)”, those with income up to INR 5 lakh do not pay any income tax in both old and new tax regimes.

Standard deduction Rs.52,500.

The standard deduction in the new tax scheme, whose salary income is above Rs.15.50 Lac or more got the benefit of Rs.52,500.

Reduction in a surcharge to 25%.

The FY 2023-24, budget capped the highest surcharge to 25 percent, thereby limiting the maximum tax rate for higher-salary income is 39 percent.

Increase in tax exemption on leave encashment to 25Lac.

If you are avail leave encashment on retirement can now take exemption up to Rs 25 lakh as regards to the earlier limit of INR 3 lakh.

It’s important to note that the best option between the old and new income tax scheme depends on your specific financial situation and circumstances.

Factors like your housing loan interest, savings, expenses, and exemptions should be considered in an old scheme to determine the most advantageous choice. If you do not have such deductions, better you should switch to the new scheme.

It’s always a good idea to consult a tax expert to help you make an informed decision.

Team IN Filings, your trusted tax advisor based in Bangalore. With years of expertise and a commitment to excellence, we’re here to help you navigate the complexities of tax filing. For all your tax needs, contact us today to schedule a consultation.”