The government did not make any changes to the taxes for regular people in the latest budget.
If you stick to the old tax rules, you won’t be taxed on income up to Rs 2.5 lakh.
Still, there’s a way to save on taxes for income up to Rs 5 lakh under Section 87A of the Income Tax Act.
If you opt for the new tax rules, you won’t be taxed on income up to Rs 3 lakh.
Salaried individuals can get tax exemption on income up to Rs 7.5 lakh, and others up to Rs 7 lakh under Section 87A.
Let’s break down the old tax rules with an example: If someone earns Rs 5 lakh annually, the first Rs 2.5 lakh is tax-free.
The remaining Rs 2.5 lakh is taxed at 5%, resulting in a tax of Rs 12,500, which is waived under Section 87A.
There’s a catch, though. If your income is even one rupee over Rs 5 lakh, you’ll be taxed on the entire Rs 2.5 lakh at a 5% rate, plus 20% on the remaining Rs 1.
Now, for the new tax rules: If someone earns Rs 5 lakh, the first Rs 3 lakh is tax-free.
The remaining Rs 2 lakh is taxed at 5%, resulting in a tax of Rs 10,000.
However, in this regime, the government waives taxes on income up to Rs 7.5 lakh under Section 87A.
Another catch: If you are salaried and earn even one rupee over Rs 7.5 lakh, you’ll be taxed on the entire Rs 4,50,001.
After waiving the tax of Rs 3 lakh, you’ll pay 5% on Rs 3 lakh and 10% on the remaining Rs 1,50,001, resulting in a total tax liability of Rs 30,000.
In the new tax system, salaried individuals get an extra benefit of a standard deduction of Rs 50,000, making their income up to Rs 7.5 lakh tax-free.
The difference between the old and new tax regimes is that the new option, introduced in 2020, increased the tax-free income range but removed some tax deductions.
Recent changes in the tax and investment landscape include an increased rebate limit to Rs 7 lakh for those opting for the new tax regime.
Additionally, the investment limits in Senior Citizens Savings Scheme and Monthly Income Scheme have been raised.
A new scheme, ‘Mahila Samman Saving Certificate,’ offers 7.5% interest on a maximum deposit of Rs 2 lakh for two years.
Finally, tax rules have been modified for Provident Fund withdrawals.
If PAN is not linked, the TDS during withdrawal has been reduced to 20% from 30%, benefiting those with unlinked PANs.
