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How to Save Income Tax in New Tax Regime?
As per Budget 2020, the Government of India has established a new tax regime, which is more attractive compared to the old tax regime. One of the crucial changes that were made in the new tax regime was that individuals with Rs. 7 Lakh income will have zero tax liability. Furthermore, this new regime provides two types of tax deductions to salaried employees. To learn how to save tax in the new tax regime and avail these deductions, read more!
This deduction is accessible only to salaried employees and pensioners. As per the new regime, salaried individuals can claim the benefit of standard deductions of Rs. 50,000, and pensioners can claim a deduction of Rs.15,000. Furthermore, the surcharge rate on income of more than Rs.5 Crore has decreased from 37% to 25% resulting in a reduction of the tax rate from 42.74% to 39%.
It is available to employees, whose employer have deposited their money in the Tier-I NPS account. According to the new income tax laws, a private sector employee can claim up to 10% of their salary (Basic Salary + Dearness Allowence) as a deduction, and for government sector employees, the deduction rate is up to 14% of salary (Basic Salary + Dearness Allowence) under Section 80CCD (2) of the Income Tax Act, 1961.
To understand these deductions in a clearly let us take an example. Say, you are a private sector employee who earns Rs.9 Lakh as a gross salary and receives a basic salary of Rs.6 Lakh. Now, as per the new tax regime, you will receive Rs.50,000 as standard deductions and Rs.60,000 (10% of Rs.6 Lakh) under section 80CCD (2). Even if, contribution made by employer is Rs.70,000 deduction will be restructed to Rs.60,000 as per Section 80CCD(2).
The following table shows how you will claim the deduction as per the new tax regime slabs while filing an Income Tax Return to save tax revenue.
|
Particulars |
Amount (Rs.) |
|
Gross Salary |
Rs.9,00,000 |
|
Less: Standard deduction |
Rs.50,000 |
|
Net Salary |
Rs.8,50,000 |
|
Less: Deduction under Section 80CCD (2) |
Rs.60,000 |
|
Net Income |
Rs.7,90,000 |
So, from the above table, you understand that you will receive a net taxable income of Rs.7.9 Lakh after claiming the deductions as per the new tax regime.
Also Read - 9 Useful Income Tax Saving Tips For Small Businesses
|
Total Income (Rs) |
Rate (per cent) |
|
Up to Rs.3,00,000 |
Nil |
|
From Rs.3,00,001 to Rs.6,00,000 |
5% |
|
From Rs.6,00,001 to Rs.9,00,000 |
10% |
|
From Rs.9,00,001 to Rs.12,00,000 |
15% |
|
From Rs.12,00,001 to Rs.15,00,000 |
20% |
|
Above Rs.15,00,000 |
30% |
Source: https://www.pib.gov.in/PressReleasePage.aspx?PRID=1895315
* Please note that the rates are applicable to FY 2023-24.
* Note: Rebate limit of Personal Income Tax under new tax regime is Rs.7 lakh. Thus, persons in the new tax regime, with income up to Rs.7 lakh to not pay any tax.
Also Read - What are the Tax Benefits of MSME in 2024?
After learning how to save tax in the new tax regime of the Union Budget, you can enjoy various deductions and benefits mentioned above. Furthermore, by using the tips you would not be burdened at the end of the year and will be able to make crucial investment decisions.
This blog provides informational content on tax benefits and rules based on the current provisions of the Income Tax Act of India, 1961. The interpretations are subject to change as per amendments made by the Government of India. Applicable rates of GST and cess will be as per the current regulations. Readers must seek professional advice for accurate and up-to-date information.
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