Salary package Rs 13 lakh and yearly deductions Rs 4 lakh, which tax regime can you choose; old or new? Know through example

After the recent Budget has announced an enhancement in the standard deduction by Rs 25,000 to Rs 75,0000, the new tax regime will be more lucrative for the middle class and salaried class drawing salaries in the range of Rs 12-15 lakhs. For the unversed, Indian government came up with a New tax regime in the Budget 2020 and in it concessional tax rates were offered to taxpayers but without Rs 1.5 lakh deductions as part of Section 80 C and other similar deductions.

Here's a take on how taxpayers or salaried class will be better off opting new tax regime:

Chintan Ghelani, Associate Partner, N.A. Shah Associates held that In India, salaried persons earning income in the range of 12-15 lakhs are opting for new tax regime as reduction in tax outgo due to reduced tax slabs is more beneficial as compared to claim of deductions/exemptions available under the old tax regime. In the recent budget proposals, new tax regime is further incentivised by increasing standard deduction from INR 50,000/- to 75,000/- only for new tax regime and changing the tax slabs to give further benefit of Rs. 10,000.

For simplicity, comparison between tax outgo as per proposed new tax regime and old tax regime for a salaried employee earning salary of Rs. 13 lakhs and eligible to claim deductions/exemption of INR3.5 lakhs, other than standard deduction, is given below:

Computation of taxable income

Total Income as per proposed new regime	INR	Total Income as per proposed new regime	Income INR
Salary income	13,00,000	Salary income	13,00,000
Less: Standard Deduction	75,000	Less: Standard Deduction and other deductions/exemption	4,00,000
Net taxable Income	12,25,000	Net taxable Income	9,00,000

 

 

 

 

 

 

 

 

Computation of tax liability

Total Income	Tax outgo new tax regime	Tax outgo old regime
Up to 3 lakhs	0	2,500
3 lakhs to 7 lakhs	20,000	50,000
7 lakhs to 10 lakhs	30,000	40,000
Above 10 lakhs	35,000	Nil
Total	85,000	92,500

 

 

 

 

 

 

 

 

 

 

Based on above comparison, it is clear that proposed new tax regime is beneficial even if eligible deduction/exemptions are to the tune of INR 3.50 lakhs.As a result, more and more employees earning salary in the range of 10 to 15 lakhs would gofor proposed  new tax regime.

CA Anand Pandey, Sr Manager Designate, Genesys International said, “The Budget 2024 has provided significant relief for middle-class salaried individuals who have opted for the new tax regime. With the revised slab rates and an increase in the standard deduction limit, the taxpayers will now pay INR 17,500 less in taxes compared to the previous fiscal year."

The government is actively promoting the new tax regime for its simplicity and reduced chances of disputes related to deductions. The revised slabs and increased standard deduction are steps in the right direction, ensuring that salaried employees benefit from lower tax liabilities while navigating a more transparent tax system, he added.