Tax Deducted at Source [TDS]

As we are in new FY, all employees who are earning more than 5 lac have to plan their tax and give their declarations so that we shall deduct the TDS accordingly.

The New Tax Rates are:

Income Tax Slabs for FY 2023-24 

  Old Scheme   - Tax Exemptions allowed  

  Yearly Income - Tax Rate  

  Up to 2.5 lac - 0% 

  2.5 lac to 5 lac - 5%  

  5 lac to 10 lac - 20%   

  Above 10 lac - 30%   

Additional Surcharge applicable under the old regime

50 Lac to 1 Crore - 10%

1 Crore to 2 Crores - 15%

2 Crores to 5 Crores - 25%

Above 5 Crores - 37%

Rebate U/s 87A  under the old regime is 12500/-

 ___________________________________________

New Scheme   Tax Exemptions not allowed  

  Yearly Income - Tax Rate  

  Up to 3 lac - 0% 

  3 lac to 6 lac - 5% 

  6 lac to 9 lac - 10%    

  9 lac to 12 lac - 15%  

  12 lac to 15 lac - 20%  

  Above 15 lac - 30%  

Additional Surcharge applicable under the new regime

50 Lac to 1 Crore - 10%

1 Crore to 2 Crores - 15%

Above 5 Crores - 25%

Rebate U/S 87A is 25000/-

Because of the Standard Deduction of 50000/- and the rebate of 25000/-, there won’t be any tax upto 7.5 lakhs under the new regime.

Since there is much difference (2 months TDS payable) at the end of the year, we are going to deduct the TDS from April onwards.

While sending the declarations, the employees must mention their choice of tax scheme that they would like to go with. If they do not mentioned it, then by default we will calculate the tax as per old scheme only.

Claimable Tax Deductions & Exemptions in New Tax Regime :

• Transport allowances in case of a specially-abled person. 

• Conveyance allowance received to meet the conveyance expenditure incurred as part of the employment. 

• Daily allowance received to meet the ordinary regular charges or expenditure you incur on account of absence from his regular place of duty. 

• Perquisites for official purposes

• Exemption on voluntary retirement 10(10C) and Leave encashment u/s 10(10AA)

• Gifts up to Rs 5,000

• Deduction for additional employee cost (Section 80JJA)

• Budget 2023 introduced a standard deduction of Rs 50,000 under New Tax Regime applicable from FY 2023-24

• Budget 2023 also introduced deduction under Section 57(iia) of family pension income

• Budget 2023 further introduced deduction of amount paid or deposited in the Agniveer Corpus Fund under Section 80CCH(2)

Non-Claimable Tax Deductions & Exemptions in New Tax Regime :

• Standard Deductions u/ Section 80TTA and Section 80TTB

• Deductions u/ Section 80C, 80D, 80E, 80CCC, 80CCD, 80DD, 80DDB, 80EE, 80EEA, 80G, etc. of Chapter VI-A of IT Act

• Professional Tax

• Entertainment Allowance on Salaries

• House Rent Allowance (HRA)

• Leave Travel Allowance (LTA)

• Helper Allowance

• Child Education Allowance

• Minor Child Income Allowance

• Interest on Housing Loan Self-Occupied/ Vacant Property

• Other Special Allowance u/ Section 10(14)

• Employee’s Contributions to NPS Account

• Donations to Political Parties/ Trusts

#1 Tax Deduction Under Section 80C

The most popular tax deduction of 1.5 Lakh under section 80C is not applicable for new tax structure. This means you cannot claim any benefit for investment made in the instruments such as PF, PPF, Life insurance premium, school tuition fees of children, ELSS, PPF, NPS etc.

#2 Tax Deduction Under Section 80D

No tax deduction is allowed for the medical insurance premium and preventive health checkup under section 80D for new tax structure.

#3 HRA

HRA is house rent allowance. HRA is paid to salaried individuals by employer as a part of salary. Earlier taxpayer was able to claim HRA up to a certain limit. 

#4 Standard Deduction

A standard deduction benefit of Rs.50000 currently available to salaried tax payer & Standard deduction is applicable for the New Tax Regime also.

#5 Section 80TTA Benefits

Section 80TTA provides deduction of Rs.10000 on interest income. On new tax regime this benefit is not available.

#6 Section 80DDB Benefits

Benefits for disability under section 80DDB up to Rs.40000 not available in case you are planning to opt for new reduced tax structure.

#7 Section 80E Education Loan

Tax break permissible on the interest paid on education loan will not be claimable under section 80E.

#8 Section 80G of Donation

You were able to make donation under section 80G and claim income tax benefit of equivalent amount. The said deduction is not available in reduced tax structure.

#9 Section 24 Home Loan Interest

Under section 24 of the Income tax act, an individual was able to claim tax deduction on the interest payment on the housing loan up to a maximum amount of Rs.200000. This benefit is not extended if you opt for new tax structure.

In short, all deduction applicable under chapter VIA like section 80C, 80CCC, 80CCD, 80D, 80DD, 80DDB, 80E, 80EE, 80EEA, 80EEB, 80G, 80GG, 80GGA, 80GGC, 80IA, 80-IAB, 80-IAC, 80-IB, 80-IBA, etc) will not be claimable by those opting for the new tax regime. 

Conclusion

From above cases example it is obvious that in most of the cases old tax rate with deduction offers higher tax benefits. New reduced tax rate is beneficial only if you are not claiming any deductions as of now. (which is very rare)

If you have home loan and higher income you will get higher tax benefits in old tax rate compared to new tax rate.