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.
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 is a point-wise explanation of exemptions on HRA, LTA, housing loan interest and principal, NPS contribution, and donation in India:
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.
Donations made to specified charitable institutions are eligible for deduction under section 80G of the Income Tax Act, up to a certain limit.
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
|Slabs (Rs)||Revised tax rates|
|Upto 3 lakh||NIL|
|3- 6 lakhs||5%|
|12- 15 lakhs||20%|
|15 lakhs and above||30%|
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.
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