New vs Old Income Tax Regime: Why Taxpayers Must Choose Regime In April

New Delhi: With the new Financial Year (FY 2023-2024) kicking in, your income tax-related matters ought to be organised within the prescribed time frame. The most important aspect of this financial year is the introduction of new income tax slab --announced by FM Nirmala Sitharaman in this year's Budget -- and your consequent choice/selection of a tax regime thereupon.

The choice between the old and new tax regimes must be made in April. This is because an I-T circular earlier this month had said businesses must ask workers for specifics about their preferred tax structure for the current fiscal year and adjust TDS deductions accordingly.

If an employee does not inform their employer about the desired tax regime, the employer will be compelled to withhold TDS from salary income.

Why It Is Important To Choose Tax Regime In April?

For salaried people, it's crucial to arrange their taxes in this month alone due to changes made by the Income Tax Act of 1961. This is due to the fact that the tax system a person chooses will determine how much tax is withheld from their salary income. Inadequate tax planning will increase TDS from salary income and lower take-home pay.

Hence, TDS will be taken out in accordance with the new income tax slabs under the new tax regime if you don't let your employer know which tax system you've selected.

What Happens When You Don't Choose Tax Regime?

The tax system cannot be altered during the fiscal year after it has been finalised. The tax regime option communicated in April will continue to be the foundation for the employer's salary tax deductions. While filing the ITR, you might choose a different tax structure.

New Tax Regime Vs Old Tax Regime: What Expert Says

Amit Gupta, Managing Director, SAG Infotech said, " For the fiscal year 2023–2024, the government will implement a new tax system that will adjust the income tax slabs. The new tax system also provides a basic deduction, a reduction in the surcharge on taxable income over Rs 5 crore, and no tax on taxable income up to Rs 7 lakh."

"Salary earners must prepare their taxes this month due to changes imposed under the Income Tax Act of 1961. The tax system a person selects will affect the amount of tax withheld from their wage income. Ineffective tax planning might lead to higher TDS from salary income, which would affect take-home pay," Gupta added.

"You must wait until the income tax department processes your income tax return (ITR) form and issues an income tax refund before collecting any additional funds if more tax was taken from your pay income than was really required," he further said.

Changes Announced In New Tax Regime:

Following are the changes announced under the new tax regime

- New income tax slabs

- Hike in basic exemption

- Standard deduction for salaried and pensioners

- Reduction in surcharge rate

New Income Tax Slab:

For people with an annual income of up to Rs 7 lakh, there will be no tax under the new tax system. The basic exemption level has been raised to 3 lakh and a standard deduction of 50,000 is allowed.

Income between 3 and 6 lakh would be taxed at a rate of 5 percent; 6 to 9 lakh at a rate of 10 percent; 9 to 12 lakh at a rate of 15 percent; 12 to 15 lakh at a rate of 20 percent; and 15 lakh and above at a rate of 30 percent.

Old Tax Regime Tax Slab:

The baseline exemption level under the previous tax code, which provides for exemptions and deductions, is 2.5 lakh rupees. Moreover, anyone with an annual income of 5 lakh rupees are exempt from paying taxes.

A 5 percent tax is applied to income between 2.5 lakh and 5 lakh, while a 20 percent tax is applied to income between 5 lakh and 10 lakh. Taxes on income beyond Rs 10 lakh are levied at 30 percent.