In the last article, we saw how Rocket Singh claimed tax deductions under various components of his salary structure. If you have not checked that article yet, please read it before proceeding further - Click here.

Income tax deductions help individuals lower their taxable income and ultimately reduce their tax liability in a given financial year. Put simply, income tax deductions are investments made during a financial year that is offset against the gross annual income when filing income tax returns

Now that Rocket Singh has claimed all the deductions available for him under various allowances he is now eager to reduce it further:

Income Tax Calculation

	Old Regime Tax Deduction (INR)	New Regime Tax Deduction (INR)	Explanation/reasoning
a) Annual Income	12,00,000	12,00,000
b) Tax deduction from salary slip	-3,76,000	0	Refer to part 1
c) Standard Deduction	-50,000	-50,000	It is usually deducted from the gross salary and is claimed as an exemption without having to show any proof of expenses. Hence, this flat amount of INR 50,000 is deducted from the gross salary
d) Section 80C (EPF +ELSS Mutual fund)	-1,50,000	0	It allows taxpayers to make certain investments and claim tax deductions of up to Rs 1.5 lakh in a financial year. Read here - to know more.
e) Section 80D (Health Insurance)	-50,000	0	It provides income tax deductions related to the medical insurance premium paid for yourself, your spouse, your parents, and your dependent children.
f) Section 80CCD (NPS)	-50,000	0	It relates to the deductions available against contributions made to the National Pension Scheme (NPS) or the Atal Pension Yojana (APY).
g) Total (Deduction & Exemption)	7,26,000	50,000
Net Taxable Income (a-f)	5,24,000	11,50,000

As his taxable income is now INR 5,24,000, he falls under the slab of 5 lakhs - 7.5 lakhs of income tax. Thus he now has to pay a tax of INR 1500 only each month whereas he had to pay INR 15,000 in the beginning as his taxable income as per CTC was INR 12,00,000.

In contrast, if he opts for the New Regime, he would have to pay INR 7,150 in taxes each month. This example clearly shows that Rocket Singh would benefit more from the Old Regime as he can claim more deductions and allowances to reduce his taxable income.

Understanding your taxable income, how it is taxed, and planning carefully can help you save on taxes. It's crucial to declare all investments at the beginning of the assessment year to ensure accurate calculation of the taxes to be paid.

It is important to note, After Budget 2023, you can choose your Tax Regime option with the employer ONLY ONCE in any particular Financial Year. If you fail to mention your tax regime before due date, your employer will deduct taxes on salary income based on the New Tax Regime by default. However, if you are unsure about which  tax regime to choose, you have the flexibility to change your decision ONLY at the time of filing your ITR. 

Further to know more about rocket Singh’s journey and how he reduced his tax liability - check our course- Understanding CTC and Salary Structure.

One of the biggest reasons why many salaried individuals struggle with income tax calculation is their inability to understand salary components and structure properly. The net CTC offered to you by your employer has several tax-saving components, and to take maximum advantage of these components, you must have a proper understanding of your salary structure.

But before knowing how to calculate the income from salary, you should first check your CTC to understand the taxability of various components. All the components would be classified into 3 categories - Taxable, Potentially taxable and Fully Exempt from tax. -.

For instance, let us take the example of Rocket Singh who earns INR 12 lakh annually.

In this case:

• Fully taxable allowance includes: Basic salary & special allowance
• Potentially taxable allowance includes: House Rent Allowance (HRA) & Leave Travel Allowance (LTA)
• Fully Exempt allowance includes: Food Allowance & Telephone Allowance

(If you want to know more about allowance in detail: read here)

Now that we know the taxability of the components of his salary structure, let's understand how he can reduce his tax liability by claiming maximum benefits from his CTC

Income Tax Calculation (Old vs. New Tax Regime)

	Deduction & Exemption (INR)	Explanation
a) Annual Income	12,00,000
b) HRA	-3,00,000	Actual HRA is INR 3,00,000 annually  50% of Basic in INR 3,00,000 annually Actual Rent Paid - 10% of Basic is INR 4,14,000 annually (INR 4,20,000 - INR 6,000)  Therefore, INR 3,00,000 is the lowest and hence it is used for tax exemption  To read more about HRA - click here.
c) Leave Travel Allowance	-28,000	Mr. Rocket Singh had travelled  to Jammu along with his family this year. The total cost of the flight that he incurred was INR 28,000.  Therefore he can claim an exemption for the same as it was the shortest distance to the destination.   To read more about LTA - click here.
d) Food Allowance	-24,000	Meal Coupons like Sodexo or Ticket are tax-free subject to Rs 50 per meal and 2 meals per day.  A sum of Rs 24,000 can be availed as a deduction by Rocket Singh annually.
e) Telephone Reimbursement	-24,000	As a thumb rule, official expenses on telephones, including mobile phones paid by the employer on behalf of the employee, are not taxable.
f) Total	3,76,000
Net Taxable Income (a-f)	8,24,000

The Taxable income is now reduced from INR 12,00,000 to INR 8,24,000 but this is not the end. You can further reduce the taxable income by deducting the standard deduction and by claiming other tax deductions available to you under Chapter VI. You can read more about these deductions here. However, in the case of the New Regime, no such deductions are available. 

Further to know more about Rocket Singh’s journey and how he reduced his tax liability - check our course- Understanding CTC and Salary Structure.

We have also discussed in brief part 2 of this article where we discuss more tax deductions - you can check it here. 

With the latest tax updates around us it is important for you to select Old Regime or New Regime for your tax planning ! In this article, we're going to break down the differences between the Old Tax Regime and the New Tax Regime in India, so you can make an informed decision that fits your financial situation.

So, Let's start with the basics - What are Tax Regimes?

Tax Regimes are a set of rules that help you calculate your tax liability. In India, you've got two options to choose from - the Old Tax Regime and the New Tax Regime. The Old Tax Regime has been around since way back in 1961 when the Income Tax Act was introduced. But in 2020, the government introduced the New Tax Regime as part of the Finance Act. There have been changes in both regimes, including some updates in the Budget 2023.

Tax Rates:

Old Tax Regime

INCOME SLAB	INCOME TAX RATE
up to ₹250,000	Nil
₹250,001 to ₹5,00,000	5%
₹5,00,001 to ₹10,00,000	20%
More than ₹10,00,000	30%

New Tax Regime

INCOME SLAB	INCOME TAX RATE
Up to ₹ 3,00,000	Nil
₹3,00,001 to ₹6,00,000	5%
₹6,00,001 to ₹9,00,000	10%
₹9,00,001 to ₹12,00,000	15%
₹12,00,001 to ₹15,00,000	20%
More than ₹15,00,000	30%

Compared to the Old Tax Regime, the New Tax Regime generally offers lower tax rates for certain income slabs, especially for individuals with lower income levels. This makes the New Tax Regime attractive for taxpayers who may not have significant exemptions, deductions, or allowances. However, it's important to note that the Old Tax Regime has some special tax exemptions for senior citizens aged above 60, which are not available under the New Tax Regime.

Income Tax Slabs for Senior Citizen aged above 60 years but below 80 years under old tax regime

Income Tax Slabs (In Rs)	Income Tax Rate %
From 0 to 3,00,000	0%
From 3,00,001 to 5,00,000	5%
From 5,00,001 to 10,00,000	20%
From 10,00,000 and above	30%

Income Tax Slabs for Super Senior Citizens aged 80 years and above

Income Tax Slabs (In Rs)	Income Tax Rate %
From 0 to 5,00,000	0%
From 5,00,001 to 10,00,000	20%
From 10,00,001 and above	30%

Allowances and exemptions:

Allowances and exemptions are important components of your salary slip, and they can impact your tax liability. Under the Old Tax Regime, you can claim exemptions on various allowances, but this option is not available under the New Tax Regime.

However, the rate under NEW REGIME is LOWER versus the rate under OLD REGIME. Hence, in some cases, the NEW regime could also be BENEFICIAL.

Learn more about allowances here:

https://financial.wealthcafe.in/blog/2021/10/what-is-an-allowance-what-are-the-types-of-allowance/

Deductions:

Deductions are specific expenses or investments that you can claim as deductions from your taxable income. Under the Old Tax Regime, you can claim deductions under CHAPTER VI A for various expenses such as medical insurance premiums, tuition fees, donations to charitable organisations, etc. as well as investments in specified financial instruments such as Public Provident Fund (PPF), National Savings Certificates (NSC), and Equity-linked Savings Schemes (ELSS) and many more. However, under the New Tax Regime, most deductions are not allowed. Ouch!

But here's some good news - starting from FY 2023-24, you can now claim a Standard Deduction of INR 50,000 directly from your taxable income in the Old Regime and the New Regime. That means you can now enjoy some tax savings, even if you opt for the New Tax Regime. Now this may impact your decision-making process when choosing between the two regimes.

Rebates:

Rebates are another important consideration - they can be a game-changer when it comes to reducing your tax liability. Rebates are a form of relief from taxes that directly cancels out the taxable amount that you are liable to pay. 

Under the Old Tax Regime, if your taxable income is under INR 5 lakhs, you don't have to pay any taxes. That's right, it's tax-free! But hold on, there's even better news. 

With the recent changes after Budget 2023, under the New Tax Regime, if your taxable income is under INR 7 lakhs, it's tax-free. That means you get a bit more breathing room when it comes to tax-free income. It's definitely something to consider while making your decision on which tax regime to choose.

So, Which one is better?

Well, that depends on your individual circumstances. The Old Tax Regime allows for more exemptions, deductions, and rebates, which can significantly lower your tax liability. But the New Tax Regime offers lower tax rates. 

Here is what you need to do –

• Salary Structure deduction and Chapter VI Deductions:

First, calculate all the exemptions that you are currently availing of. This may include House Rent Allowance (HRA), Leave Travel Allowance (LTA), food bills, phone bills, and other tax-free components. Additionally, Claim all your 80C, 80D and other deductions. 

Please Note: Salary allowance and Chapter VI Deductions are NOT available under NEW REGIME

• Standard Deduction

Remember to deduct INR 50K of the standard Deduction under both: Old and New Regime. Now calculate both under their tax rates.

Wealth Cafe Advice

There is no one right answer that fits everyone here! YOU MUST COMPUTE it for yourself and then decide. You can refer to the calculator shared by the govt here - ______________ or even your company’s portals have the same which will be a good place to start looking for these. 

We do understand it's a tough call! So, take a good hard look at your financial situation, consider all the factors, and maybe even consult with a tax pro. You can reach out to us at iplan@wealthcafe.in for assistance.

If you want to dive deeper into the topic, check out our blog - click here, where we discuss an example on how to calculate your tax liability under both regimes. We hope this article has helped clarify things for you and made the decision-making process a little easier. Happy tax planning!

Based on the above Budget 2023 changes, the following is the latest TDS Rates Chart for FY 2023-24 (AY 2024-25).

Section	For Payment of	Threshold limit	TDS Rate %
192	Salary Income	Income Tax Slab	Slab rates(Based on old or new tax regimes)
192 A	EPF – Premature withdrawal	Rs 50,000	10% (If no PAN, then @20%)
193	Interest on Securities	Rs. 2,500	10%
194	Dividend	Rs 5,000	10%
194 A	Interest on Bank Deposit/Post Office Deposit/Banking Co-Society Deposit(Interest other than “Interest on securities” )	Rs. 40,000(Rs 50,000 for Senior Citizens)	10%
194 A	Interest other than “Interest on securities”(Other Than Bank Deposit/Post Office Deposit/Banking Co-Society Deposit)	Rs. 5,000	10%
194 B	Winnings from lotteries, crossword puzzles, card games and other games of any sort (Aggregate winnings during FY and excludes online gaming).	Rs. 10,000	30%
194 B	Winnings from online games	Nil	30%
194 BB	Winnings from horse races (Aggregate winnings during FY)	Rs. 10,000	30%
194 D	Payment of Insurance Commission(Form 15G/H can be submitted)	Rs. 15,000	5% (Individuals)10% (Companies)
194DA	Payment in respect of Life Insurance Policy	Rs 1,00,000	5%
194E	Payment to non-resident sportsmen/sports association	–	20%
194 EE	Payment of NSS Deposits	Rs 2,500	10%
194 G	Commission on the Sale of lottery tickets	Rs 15,000	5%
194 H	Commission or Brokerage	Rs 15,000	5%
194 IA	Rent of Plant & Machinery	Rs. 2,40,000	2%
194 IB	Rent of Land or building or furniture or fitting	Rs 2,40,000	10%
194 IA	Payment on transfer of certain immovable property other than agricultural land	Rs. 50 lakh	1% (TDS is to be deducted at the rate of 1% of such sum paid or credited to the resident or the stamp duty value of such property, whichever is higher.)
194 IB	Payment of rent by individual or HUF not liable to tax audit	Rs.50,000 per month	5%
194IC	Payment of monetary consideration under Joint Development Agreements	–	10%
194J	Fees for professional or technical services	Rs 30,000	2% (for technical services) (or) 10% (payable towards royalty in the nature of consideration for sale, distribution or exhibition of cinematographic films;)
194LA	Payment of compensation on acquisition of certain immovable property	Rs 2,50,000	10%
194 LB	Interest from Infrastructure Bond to NRI	NA	5%
194 M	Payment of commission (not being insurance commission), brokerage, contractual fee, or professional fee to a resident person by an Individual or a HUF who are not liable to deduct TDS under section 194C, 194H, or 194J.	Rs.50,00,000	5%
194N	Cash withdrawal during the previous year from one or more account maintained by a person with a banking company, co-operative society engaged in business of banking or a post office:	> Rs 1cr (if the person withdrawing the cash has filed income tax return for any or all three previous AYs.).> Rs.20 lakh (if the person withdrawing the cash has not filed ITR for any of the preceding three AYs.)> Rs.3 Cr for cooperative banks	2% and 5% (cash withdrawals exceeding Rs.1 Cr if the person withdrawing the cash has not filed ITR for any of the preceding three AYs.)
194Q	Purchase of goods (applicable w.e.f 01.07.2021)	Rs 50 lakh	0.10%
195	Payment of any other sum to a Non-resident (NRI)	–	20% (Income in respect of investment made by a Non-resident Indian Citizen).10% (Income by way of long-term capital gains referred to in Section 115E in case of a Non-resident Indian Citizen, Income by way of long-term capital gains referred to in sub-clause (iii) of clause (c) of sub-Section (1) of Section 112, Income by way of long-term capital gains as referred to in Section 112A).15% (Income by way of short-term capital gains referred to in Section 111A)20% (Any other income by way of long-term capital gains [not being long-term capital gains referred to in clauses 10(33), 10(36) and 112A, Income by way of interest payable by Government or an Indian concern on money borrowed or debt incurred by Government or the Indian concern in foreign currency (not being income by way of interest referred to in Section 194LB or Section 194LC))30% on any other income
206AB	TDS on non-filers of ITR at higher rates(applicable w.e.f 01.07.2021)	–	Higher of– 5%– Twice the rate in act– Twice the rate or rate in force
194P	TDS on Senior Citizen above 75 Years (No ITR filing cases)	–	Slab Rates
206AA	TDS rate in case ofNon-availability ofPAN	–	Higher of –As per actTwice the rate or rate in force20%
194R	TDS on benefit or perquisite of a business or profession	Rs.20,000	10%
194S	TDS on payment forVirtual Digital Assets	“Specified Person” Payer– 50,000Other Payers – 10,000	1%

TDS changes in Budget 2023

Let us now discuss on what are the changes introduced during the budget 2023.

• In order to give relief to the co-operative societies, the limit of Rs.1 Crore has been proposed to be enhanced to Rs.3 Crores in the Finance Bill 2023, which means that if the Co-operative society cash withdrawal from a bank exceeds Rs. 3 Crores, then TDS @ 2% shall be deducted from the Co-operative society. However, this is not applicable to individuals.
• As per the current law, TDS is applicable to winnings made from online gaming. Winnings are required to be reported under the head ‘Income from other sources while filing ITR. TDS becomes applicable if the winnings made from each online game exceed Rs 10,000. Further, TDS on winnings is deducted at 30%. This threshold limit of deducting the TDS is removed. Hence, no matter what may be your gain, a TDS of 30% is applicable for you.
• Earlier during the withdrawal of EPF (within 5 years), if you do not provide a PAN number, then the TDS was at 30%. Now it is reduced to 20%. 
• It was proposed in Budget 2023 to omit clause ix of the proviso to Section 193 of the Act, thereby removing the exemption from TDS on payment of any income to a resident by way of interest on listed debentures with effect from 01-04-2023. Now the TDS is applicable on such debentures at the rate of 10%.

In case you are confused about TDS Return Filing, feel free to connect with us at iplan@wealthcafe.in

As discussed before, when it comes to calculating your tax liability, you have two options to choose from - the Old Tax Regime and the New Tax Regime. In this article, we will explore how tax liability differs under these two regimes.

Let's take a closer look at the tax rates under both regimes.

OLD TAX REGIME

INCOME SLAB	INCOME TAX RATE
up to ₹250,000	Nil
₹250,001 to ₹5,00,000	5%
₹5,00,001 to ₹10,00,000	20%
More than ₹10,00,000	30%

NEW TAX REGIME

INCOME SLAB	INCOME TAX RATE
Up to ₹ 3,00,000	Nil
₹3,00,001 to ₹6,00,000	5%
₹6,00,001 to ₹9,00,000	10%
₹9,00,001 to ₹12,00,000	15%
₹12,00,001 to ₹15,00,000	20%
More than ₹15,00,000	30%

Annual Income up to INR 7.5 Lakhs

For those with an annual income up to INR 7.5 lakhs, the New Regime is the clear choice as it is tax-free. After the Budget 2023, income up to INR 7 lakhs is tax-free under the New Regime. Moreover, a standard deduction of INR 50,000 is now allowed under this regime as well.

Annual Income More than INR 7.5 Lakhs

If your income is more than INR 7.5 Lakhs, the decision of which regime to opt for depends on your financial situation and the amount of deduction you can claim. To make an informed decision, you need to calculate your tax liability. However, we can provide some guidance to help you make your decision.

As discussed, after Budget 2023, New Regime has become more beneficial. However, the Old Regime can still be advantageous for you if your deductions are more than the amount mentioned below:

GROSS TAXABLE INCOME	OLD REGIME IF DEDUCTION IS MORE THAN
Up to INR 750000	NEW REGIME
INR 8,00,000	INR 2,12,500
INR 8,50,000	INR 2,40,000
INR 9,00,000	INR 2,62,500
INR 10,00,000	INR 3,00,000
INR 11,00,000	INR 3,25,000
INR 12,25,000	INR 3,56,000
INR 13,50,000	INR 2,62,000
INR 14,25,000	INR 3,83,000
INR 15,00,000	INR 4,08,300
INR 20,00,000	INR 4,25,000

For example, if your income is INR 10 lakhs, your annual tax liability under the New Regime would be INR 54,600, whereas under the Old Regime without any exemptions, it would be INR 106,600. This is a significant difference. However, if you have deductions exceeding INR 3,00,000, you can benefit from the Old Regime.

COMPARISON 

	New Regime	Old Regime (No Exemption)	Old Regime(With Exemption)
Taxable Income	NR 10,00,000 - 50,000 = INR 9,50,000	NR 10,00,000 - 50,000= INR 9,50,000	NR 10,00,000 - 3,10,000 = INR 6,90,000
Total Tax (Annual)	INR 1,06,600	INR 54,600	INR 52,520

Wealth Cafe Advice :

It’s time for you to leave your attachment for Old Regime aside. Calculate your tax liability under both regimes. If New Tax Regime is beneficial to you, opt for it - it is hassle-free and helps save more taxes. 

But if you have deductions and allowances that you can claim over and above mentioned in the table - opt for the old regime. 

Make sure to mention your Tax Regime to your employer correctly at the time of tax declaration in the start of the financial year, because just in case if you wish to change your regime, your employer won’t be able to help you with the same. After Budget 2023, you can do it only once in a financial year and directly while filing your ITR.

If you have any queries, you can email us at iplan@wealthcafe.in - we will help you with your decision for free.