5.5 Crore Taxpayers Are Likely To Have Selected A New Tax Regime For FY24, Based On Comparisons Of Income Tax Regimes

According to a source citing a senior government official, even though the new income tax regime would be more enticing for the financial year 2023–2024 with a refund on income up to Rs 7 lakh, roughly 5.5 crore taxpayers may have switched to the new tax system in the present fiscal. The majority of these taxpayers, it said, had taxable incomes of up to Rs 7 lakh.

“We cannot think of any reason why 55 million people wouldn’t switch to the new tax system. The majority of young taxpayers, who make between Rs 7.5-8 lakh or even up to Rs 10 lakh, prefer flexible but simple income tax filing, the official was quoted as saying in the paper.

Financial Minister Nirmala Sitharaman offered income tax cuts for individual taxpayers, particularly salaried ones, in the Budget 2023–24. Although the previous tax system was left in place, the income threshold for the new income tax system was increased to Rs 7 lakh from Rs 5 lakh. It indicates that persons earning up to Rs 7 lakh are exempt from paying taxes. With margin relief applied, persons with incomes up to Rs. 7.27 lakh crore are exempt from paying taxes.

The government has also provided a marginal relief of up to Rs 27,000 via a Rs 25,000 refund under the Finance Act, 2023, even though an annual income up to Rs 7 lakh is tax-free under the new tax system. For tax reasons, income up to Rs 7.27 lakh would be treated as equal to Rs 7 lakh, making it tax-free.

Many people were likewise eager to test the new tax system to see whether it benefited them. According to the source, taxpayers may return to the previous tax structure if they feel it to be more advantageous.

The precise number of people choosing the new tax system won’t be known until the next assessment year (2024–25), when earnings and tax liabilities for the previous fiscal year will be revealed.

According to figures from the income tax department for FY23, 4.84 crore taxpayers had taxable income up to Rs 5 lakh. According to the data, more than 1.12 crore persons had taxable incomes between Rs 5 lakh and Rs 10 lakh, while 47 lakh taxpayers had taxable incomes between Rs 10 lakh and Rs 20 lakh.

Twenty lakh taxpayers had taxable incomes between Rs 20 lakh and Rs 50 lakh, while 3.8 lakh had incomes between Rs 50 lakh and Rs 1 crore.

Similar to this, 2.6 lakh people had taxable income above Rs 1 crore.

FY24 Comparison between the New Tax Regime with the Old Tax Regime

Taxpayers earning up to Rs 7.27 lakh per year are exempt from paying any tax under the new income tax system. However, under this system, no deductions are allowed.

Income up to Rs 2.5 lakh is free from taxation under the previous system. The slab rates will be applied over this. However, this allows for the claim of deductions such Section 80C, 80D, and 80CCD. Tax experts advise anyone making up to Rs 7 lakh or, in certain situations, up to Rs 10 lakh to take into account the new tax system. They said that if you employ deductions, investments, and savings, the previous tax system may be alluring.

Basic investments including PPF, EPF, LIC premiums, and ELSS are covered under Section 80C. 80D has to do with the cost of health insurance. NPS contribution is related to Section 80CCD. Other sections, such as CCC, TTA, GG, and E, among others, may also be claimed in addition to these.