Rebate Rate Hike, Slab Changes Applicable Only In New Tax Regime: Know The Difference

For the middle class person, the proposal under the new income tax regime has been a huge relief. This would mean that an individual with an annual income of up to Rs 7 lakh will not be required to pay income tax.

Zero-Tax Benefit Is A Rebate And Not An Exemption

The proposal will only be advantageous to those who earn up to Rs 7 lakh per year under the new tax system because they will receive a 100% tax liability refund.On the other hand, those whose incomes exceed Rs 7 lakh will be subject to the new tax system's tax slabs. This is due to the fact that the zero-tax benefit is a rebate and not an exemption, and that only individuals with taxable incomes of up to Rs 7 lakh per year are eligible for it.

Illustration 1: Mr. A earns Rs. 6,00,000 annually. Given that he won't have to pay any personal income tax for the financial year 2023-24, Mr. A would be ecstatic right now.

Illustration 2: Mr. B has an annual taxable income of Rs. 7,50,000. Mr. B, will be required to pay Rs. 30,000 in income tax for the entire year as Mr. B earns more than the rebate's eligibility threshold, he is ineligible for the rebate.

Slab Rates Under New Tax Regime

The new tax rates are :

• 0-3L: nil
• 3-6L: 5%
• 6-9L: 10%
• 9-12L: 15%
• 12-15L: 20%
• above 15L: 30%

Slab Rates Under Old Tax Regime

• Up to 2,50,000: Nil
• 2,50,001 – 5,00,000: 5%
• 5,00,001- 10,00,000: 20%
• Above 10,00,000: 30%

Old Tax Regime V/s New Tax Regime

While both the old and new tax regimes have advantages and disadvantages, choosing the one that best suits their needs becomes difficult for taxpayers.

            1. Slab rates

With seven tax slab rates ranging from 0% to 30%, the new tax regime has increased the range of taxes that can be levied, with the highest tax rate being applied to income over INR 15 lakh.

An individual having an annual income of Rs. 9 Lakhs is required to pay only Rs. 45,000 as tax under the new tax regime.

In contrast to the new system, the old system had four tax brackets, ranging from 0% to 30%, with the highest rate being applied to income over INR 10 lakh.

            2. Rebate Rate Hike Only Applicable If A taxpayer chooses New Tax Regime

Under the new income tax system, the basic exemption amount has been increased to Rs 3 lakh.

Contrary to the new income tax regime, the old tax structure's slabs— income up to Rs 2.5 lakh exempt from tax, 5% tax on income over Rs 2.5 lakh to Rs 5 lakh, 20% tax on income over Rs 5 lakh to Rs 10 lakh, and 30% tax on income over Rs 10 lakh— have not been altered by the budget.

            3. Old Tax Regime Offers Tax Deductions

Despite having higher tax slabs, the country's taxpayers have largely relied on the old tax system because it gives those with higher annual incomes and more investments more room for tax deductions.

Under the previous income tax system, a number of deductions were allowable under Section 80C, Section 80D, and other provisions. With these, a person with investments sees a significant reduction in their taxable income.

If a taxpayer invests in tax-saving products, pays premiums for life or health insurance, children's tuition, home loan principal repayment, etc., and takes advantage of deductions for HRA, LTA, etc., it may be more advantageous to choose the previous tax system because the benefit of deduction/exemption can be used there.

Conclusion

One rule cannot be applied to all since each person's eligible deductions, income sources, and amount vary. Taxpayers will need to assess and contrast the tax obligations under the two regimes before deciding which to choose.