No Tax on Income Upto 7 Lakhs under New Regime

Understanding the Nuances of “No Tax on Income up to Rs. 7 Lakh”

The announcement of no tax on income up to Rs. 7 Lakh under the New Tax Regime (NTR) has garnered significant attention, but it’s crucial to delve into the finer details and intricacies of this tagline. Here’s an in-depth look at the various elements surrounding this statement:

1. Basic Exemption Limit (BEL)

For the financial year 2023-24, the BEL has been increased to Rs. 3 lakh only for taxpayers choosing NTR, not to Rs. 7 lakh. Those adhering to the old regime will continue with the Rs. 2.50 lakh exemption limit. Therefore, Rs. 7 Lakh is not the BEL, neither under the old tax regime nor under the new tax regime.

2. Tax Rebate U/s 87A

In the previous financial year, taxpayers earning up to Rs. 5 lakh were entitled to a tax rebate of Rs. 12,500 under section 87A. However, starting from the financial year 2023-24, the rebate limit has been increased to Rs. 25,000 for taxpayers choosing the NTR. Notably, different criteria apply based on the chosen tax regime.

3. Different Rules for New vs. Old Regime

Exemption limits and tax rebates differ depending on whether one opts for the new or old tax regime, with the key criteria for claiming rebate under section 87A being an income not exceeding Rs. 5 lakh or Rs. 7 lakh.

4. Limitations on Rebate

No tax rebate under section 87A is admissible against any tax arising due to LTCG from shares/equity mutual funds.

5. Impact of Income Increase under Old Tax Regime

A mere increase in income by Rs. 100 under the old tax regime may result in an additional tax liability of Rs. 12,500 (plus cess), emphasizing the importance of understanding these thresholds.

6. Marginal Relief to Taxpayers Opting for NTR

The Finance Act- 2023 has introduced the concept of marginal relief for taxpayers under NTR, mitigating the anomaly of additional tax liability for individuals with income slightly above Rs. 7 Lakh.

7. Long-Term Capital Gain (LTCG) and Tax Rebate

The interplay of LTCG and the eligibility for tax rebate under different income scenarios is a crucial factor in understanding the implications of the new tax regime.

8. Enhanced Tax Rebate U/s 87A for NTR

A detailed comparison chart showcases the impact of the enhanced tax rebate under section 87A for taxpayers in the new tax regime, shedding light on various income and capital gain scenarios.

In Conclusion
The new tax regime presents an array of benefits, but it’s essential to comprehend the associated terms and conditions. Every change has a direct impact on tax obligations, making it imperative for individuals to familiarize themselves with these intricacies to make informed financial decisions.