No income tax upto 750000 or more under New Tax regime from AY 2024-25 onwards [Rebate u/s 87A]

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We have read many articles on the internet which says that there will be no Income tax on Income upto Rs. 750000 or more under the new tax regime of Section 115BAC of the Income tax Act. However, we are not sure as to how will that work. Hence, let’s discuss how this calculation works.

Before that let’s first understand that starting AY 2024-25, new tax regime i.e. tax rate prescribed u/s 115BAC will be the default tax regime. Accordingly, if one wish to file Income tax return under old tax regime they will have to firstly file Income tax return before the due date as prescribed u/s 139(1) of the Income tax act and secondly they will have to file Form 10-IEA to opt for old tax regime.

Now, let’s understand how this calculation will work where you will not be required to pay any tax till the total income of Rs.750000 or Rs.780000.  Before moving to the calculation part let’s first understand the slab rate as prescribed u/s 115BAC of the Income tax act which shall be applicable from AY 2024-25. Below, is the slab rate for new tax regime:

First, let’s discuss about how limit of Rs.750000 is derived under the new tax regime. This limit has been stated for salaried individual, as earlier salaried individual were not allowed standard deduction under new tax regime but from AY 2024-25 they will be allowed standard.

Further, under new tax regime there is no tax upto Rs.700000 i.e. there is a rebate under income tax of Rs.25000 if the total income is upto Rs.700000.

Please note that the rebate is only available to Resident Individual and not even to HUF.

Now, the tax exemption or rebate that we were discussing is not prescribed in Section 115BAC of the Income tax act but is prescribed u/s 87A of the Income tax act.

Relevant extract of rebate is as under:

Provided that where the total income of the assessee is chargeable to tax under sub-section (1A) of section 115BAC, and the total income—

“(a) does not exceed seven hundred thousand rupees, the assessee shall be entitled to a deduction from the amount of income-tax (as computed before allowing for the deductions under this Chapter) on his total income with which he is chargeable for any assessment year, of an amount equal to one hundred per cent of such income-tax or an amount of twenty-five thousand rupees, whichever is less;

(b) exceeds seven hundred thousand rupees and the income-tax payable on such total income exceeds the amount by which the total income is in excess of seven hundred thousand rupees, the assessee shall be entitled to a deduction from the amount of income-tax (as computed before allowing the deductions under this Chapter) on his total income, of an amount equal to the amount by which the income-tax payable on such total income is in excess of the amount by which the total income exceeds seven hundred thousand rupees.”

As per above provisions there are two proviso or two limits:

(1) Rebate of Rs.25000 if total income is upto Rs.700000 i.e. if your total income is upto Rs.700000 then Rs.25000 will be reduced from the total tax payable and in general if you are paying tax at slab rate then your tax would be Rs.25000 and accordingly tax would be zero. However, if you are paying any special rate tax then this rebate won’t be fully available. This rebate was available in previous year as well.

(2) This is a new provision which has been introduced from AY 2024-25 which is, if your total income exceeds Rs.700000 and because of you are required to pay higher tax then in that case the excess tax will be reduced till the amount it is more than the total income which exceeds Rs.700000. This in simple terms is known as marginal relief and this is already present in Income tax in relation to calculating surcharge of Income tax. Let’s try and understand this with an example.

For eg: If a person earns 701000 after all exemption and deduction and because of increase of income by 1000, the assessee will have to pay an additional tax of Rs.25100. In such a case assessee shall be allowed a deduction of Rs.24100 (i.e. 25100-1000 [excess tax because of this income as compared to the excess income]). Thus, the person shall be liable to only pay Rs.1000 as tax.

Similarly, if your total income is Rs. 720000 after all exemption and deduction and total tax on same comes to Rs.27000, then in such case he will end up paying only 20000+cess on total income of Rs.720000. Thus, a person could earn around 770000 under new tax regime and could end up paying only Rs.20800 in tax which is roughly 2.7% of total salary income, which is a welcome step that Income tax department has considered and introduced marginal relief and assessee can use it while filing their return of income of AY 2024-25.

Hence, get prepared to check details on AIS and file your Income tax return with the help of an expert.

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