Did you know that the Indian government has introduced a new tax system that came into effect from the financial year 2020-21? The government wants more taxpayers to adopt this new system, so they've been making efforts to simplify it. In fact, they proposed some changes in the latest budget to make it more attractive.
But, understandably, there might still be some doubts and questions in your mind regarding the new tax system. So, let's clear up some of your queries.
Firstly, let's talk about the slabs and rates of income tax under the new regime. After the changes made in this year's budget, there are now a total of six slabs. For instance, if your annual income is up to three lakh rupees, then it's tax-free. But if your income is between Rs 3 lakh and Rs 6 lakh, then you'll be taxed at 5%. And the tax rates increase with increasing income, with those earning over Rs 15 lakh having to pay 30% tax.
Secondly, what's the basic exemption limit under the new tax regime? Earlier, only income up to Rs 2.50 lakh was tax-free, but now it has been increased to Rs 3 lakh. So, if you're earning up to three lakh rupees every year, then there won't be any tax liability on you.
Thirdly, what about the surcharge amount under the new tax regime? The government has reduced it to 25% for those earning more than Rs 2 crore. Previously, it was imposed on people whose annual income was more than five crore rupees, and they had to pay a 37% surcharge.
Now, you might be wondering if the new tax regime is mandatory. Well, it's not. The government intends to have only one tax system in the future, but for now, you can choose between the new and the old tax system.
If you default in the new tax regime, it'll be assumed that you've opted for it. So, your employer will deduct tax according to the new system's slab and rate if you don't choose any option. But don't worry, you can still choose the option while filing the return.
Finally, let's talk about the reliefs available under the new tax regime. Tax relief is given under section 87A of the Income Tax Act, and from April 01, 2023, taxpayers with taxable income up to Rs 7 lakh will get a relief of Rs 25 thousand. Meanwhile, under the old tax regime, taxpayers with taxable income up to Rs 5 lakh will get a relief of Rs 12,500.
If you have more questions regarding the new tax regime, you can visit the official website of the Income Tax Department. They have a helpful FAQ section that covers all topics related to income tax, including the new tax system and the old tax system.
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