Employers have started rolling out the tax declaration form for employees for this new financial year.
The option of selecting between old and new tax regimes is available every year since the introduction of the new regime.
While the new income tax regime was introduced in 2020, the Budget 2023 made several changes to it.
As part of the amendments, the tax rebate has been extended on income up to Rs 7 lakh as per Section 87A, as against Rs 5 lakh.
New tax slabs
The basic exemption limit has been raised to Rs 3 lakh from Rs 2.5 lakh.
The finance minister also allowed a standard deduction of Rs 50,000 under the new regime.
According to the old tax regime, if the total income of an individual is not more than Rs 2.5 lakh, the tax rate is nil.
Old tax slabs
If the income falls in Rs 2.5-5 lakh bracket, a 5% income tax is payable.
However, those earning up to Rs 5 lakh can claim a rebate of Rs 12,500 under Section 87A of the Income Tax (I-T) Act.
For individuals earning Rs 5-10 lakh, tax is deducted at the rate of 20%. If the total income of an individual is more than Rs 10 lakh, 30% tax is payable.
According to a Central Board of Direct Taxes (CBDT), a salaried individual can choose either of the tax regimes for TDS on salaries.
Default tax regime
Default tax regime
However, the new tax regime has become the default option from FY23-24.
Once the tax regime is finalised, it cannot be changed during the financial year. The employer will continue to deduct taxes on salary based on the tax regime option communicated in April.
However, at the time of filing the Income Tax Return (ITR) also, employers can switch from the old to the new regime or vice versa, whichever is more beneficial.
The Income tax department has released a 'tax calculator' to help individuals decide if the new income tax regime announced in the Budget is good for them or if the old one is better.
Ways to decide which regime is better
Ways to decide which regime is better
Taxpayers can input information related to their salary and deduction. The online tax calculator will then reveal the tax savings under both regimes.