chapter 13

Income Tax Return Filing - New   Vs Old  Regime - for Financial Year 2024-25.Part 1  of Part 2Introduction :Financial year ending approching for the Current Finacial year 2024 - 25. Now  employees may receive  intimation  from their employers to submit necessary documents for claiming various deductions and exemptions  for calculating  their  tax liability,  if such employees had  opted for old regime of Taxation. However, such documents  need not be submitted for others who had excercised option for  new tax regime or those who have not excercised  any  option. In such cases,  employers should consider the new regime for deducting Tax on Salaries. This article explains the provisions of both regimes for FY 2024-25 to assist in decision-making.Key Amendments under the Finance Act, 20241.   The Finance Act 2024 has revised certain  provisions of Section 115BAC of the Income Tax Act, 1961 effective from Assessment Year (AY) 2025 - 26, making the new tax regime to become  little more attractive, as compared to earlier years.i) Reduction in Rate of Tax:-  5% of tax for income between  Rs.  3 lakh to Rs .  7 lakh.- 10% for income between Rs 7 lakh and Rs. 10 lakh.- 15%  for income between Rs. 10 lakh to Rs. 12 lakh.  - 20% for income between Rs 12 lakh to Rs. 15 lakh (unchanged).- 30% for income exceeding Rs. 15 lakh (unchanged).Due to these changes net tax saving will be Rs 10000 for tax payer in certain brackets  as compared to preceding financial year 2023-24.ii). Enhanced Standard deduction: - for Salaried employee it has been increased to Rs. 75000  and -  for family Pensioners it has been increased  to Rs 25000 or 1/3 rd of Salary whichever is less, applicable only  to new tax regime.iii). Rate of Surcharge : Continuation of Surcharge of 25% on the income tax liability even for the individuals whose total income exceeds Rs.  500 lakhs. Therefore effective maximum marginal tax rate  at 39% under the new tax regime  lower than the 43.68 % under old tax regime.iv). Increased Deduction for NPS contribution : - Enhancement of deduction under Section 80CCD(2), being the Employer's contribution to NPS  from the maximum limit  of 10% (in the case of non-Government employee) to 14% of Salary.  - Earlier it was increased only for Central / State Government employees with effect from AY  2021-22  onwards. - Now it is extended to non-Government employees also. - But, this increased deduction limit of 14% of the Salary is not applicable in case non-Government employees who is opting for old tax regime.- Further, NPS contribution by the employer to the extent of Rs. 750000 is also exempted from tax and contributions in exess of Rs. 750000 to included as income from perquisites.2.  Points to consider while Chosing a Tax Regime:i). For Individual, HUF, AOP, BOI, or Artificial Juridical Person:   - Default tax regime will be the new regime from the FY 2023-24.   - Little More beneficial  in this year as compared the previous FY    2023-24, by providing additional standard deduction Rs 25000 and reduction in Tax Rates in certain slabs as mentioned above   - Individuals can Opt for the  the old regime if it offers more saving in Tax.ii). For taxpayers with  business / professional income:   - The option to switch to the old tax regime is allowed only once.   - After opting out of the New Tax Regime, re-switching is permitted once, after which the New Tax Regime becomes mandatory.3.  Rationale for Transitioning to the New Tax Regime :The government aims to simplify Taxation and increase transparency- Middle class taxpayers benefits from lower tax rates without the need for extensive investments.- The New Regime suits those unable to invest in tax-saving instruments.4. Comparative Analysis of Old and New Tax Regimesi)  The old tax regime allows taxpayers to claim various tax deductions and exemptions, such as House Rent Allowance (HRA), Leave Travel Allowance (LTA), gratuity, interest on housing loans, deductions for life insurance premiums, medical insurance premiums, children's education fees, donations, and the carryforward or set-off of losses. Deduction to the extent of  Rs. 50000 in respect Interest on Deposits earned by resident Senior Citizens and Rs. 10000 to others in respect interest on Saving Bank Accounts. ii)  In contrast, the new tax regime is allowing only a few exemptions and deductions, like the standard deduction and Employer's contributions to the National Pension System (NPS) up to 14% of the Salary.  A detailed  comparative analysis of both the regime with key differences, chosing between two regimes, decision making factors are discussed in details in the  Part 2 of this articles. Continued to Part 2 CA V. K. S. Shetty, Bangalore10/01/2025