How to calculate tax liability under the new tax regime for FY23?

The Finance Act 2020 introduced a new concessional tax regime for individual and HUF taxpayers under section 115BAC of the Income-tax Act, 1961 (hereinafter referred to as the ‘IT Act’) and accordingly made the said new tax regime effective from the financial year was given. 2020-21 (Age 2021-22) which provides an option to an individual and HUF to pay income tax under concessional slab rates under section 115BAC of the IT Act, subject to certain conditions.

Steps to calculate tax liability under the new tax regime for FY 2022-23:

(i) Compute gross income (including all heads such as salary, house property, capital gains, income from other sources)

(ii) Avail necessary exemptions and deductions. If the taxpayer is opting for the new concessional tax regime, he cannot avail the following tax exemptions and deductions under the following sections:

10(13A) – House Rent Allowance

10(5)- Leave Travel Concession

10(14) – Special allowance (such as children’s education allowance, hostel allowance, other than transport allowance, traveling allowance, daily allowance) detailed in rule 2BB.

10(17) – Allowances received by MPs, members of State Legislature etc.

10(32) – Clubbing benefit of Rs. 1500 per minor child

10AA – Deduction for SEZ unit

Section 16 – Standard deduction of Rs. 50000, Entertainment Allowance, Professional Tax

24(b) – interest on loan taken for self occupied property or vacant property u/s 23(2)

32(1)(iia) – Additional depreciation

32AD – Investment allowance for investment in Andhra Pradesh/Telangana/Bihar/West Bengal

33AB – Tea/Coffee/Rubber Development

33ABA – Site Restoration Fund

35(2AA) – Deduction for payment to National Laboratory or University or IIT

35AD – Deduction in respect of specified business

35CCC – Expenditure on Agricultural Extension Project

57(iia)-Family Pension

Chapter VI – A – Any of the provisions of section 80C, 80D etc. can be claimed. However, u/s 80CCD(2) (employer contribution to employee’s account in notified pension scheme) can be claimed.

The taxpayer cannot set off any brought forward loss or unabsorbed depreciation on account of the above deductions.

(iii) The taxpayer should calculate tax liability as per the rates mentioned below for the new tax regime and accordingly calculate tax under the new concessional tax regime under section 115BAC of the IT Act.

note 1: In case of new tax regime exemption under section 87A is applicable and the amount of tax payable or Rs. 12,500, whichever is less, there will be nil tax liability, provided the total income of the taxpayer is up to Rs. 5,00,000

note 2: For any resident senior citizen whose age is more than 60 years but less than or equal to 80 years, the basic exemption limit is Rs. 3,00,000. Further, the basic exemption limit of Rs. 5,00,000.

(iv) Increase the tax computed in step (iii) by Health and Education Cess @ 4% and applicable surcharge.

(v) The taxpayer should also calculate tax as per the normal/old tax regime (as per the rates mentioned above) to ascertain the benefit of the two tax regimes.

Further, any taxpayer availing the option under the beneficial tax regime needs to take note of the following points:

1. An individual taxpayer availing the option under section 115BAC of the Income Tax Act is required to file Form 10-IE along with the income tax return to be filed under section 139(1) of the IT Act.

2. The individual taxpayer may choose whether or not to exercise such option on a year-to-year basis. However, in the case of any taxpayer having business income, such option once exercised cannot be withdrawn, except in cases where the business income of the taxpayer ceases to exist.

3. Individual taxpayers availing the concessional tax regime under 115BAC will not be subject to the Alternative Minimum Tax (AMT) provisions. Accordingly, any carried forward AMT credit cannot be set off against income under section 115BAC of the IT Act.

Which tax regime should be chosen?

Gopal Bohra, Partner, NA Shah Associates, said, “At present the new tax regime has not been widely chosen by taxpayers, especially those paying interest on self-occupied house property and investing Makes eligible for deduction under section 80C/80CCD and 80D. The basic exemption limit under both the regimes is Rs.2,50,000/- but if one adds other exemptions which are available under the old regime the income on approx. 7,50,000/- (i.e. principal exemption Rs.2.50 lacs plus interest on self-occupied house Rs.2 lacs plus deduction under 80C with 80CCD Rs.2 lacs plus approx. Rs.7,50,000/-) 1 lakh which includes standard deduction, mediclaim premium, interest on savings 80TTA/80TTB etc.) under old regime while tax exemption under new regime is only of basic exemption. Most of the taxpayers who are earning income above say Rs. 10 lakh per annum will be eligible for the exemptions mentioned above, there is no incentive for them to move to the new tax regime. Unless the government tries to bring parity between the two regimes Unless the basic exemption limit is increased under the new tax regime, a taxpayer will continue with the old, complicated tax regime with multiple tax exemption options.”