Income Tax News: A few years prior, during the 2020–21 fiscal year, the government implemented a new tax system. This resulted in a minor rise in the number of income tax deduction slabs but a decrease in the tax rate. In the current fiscal year (2023–2024), individuals who opt for the new tax regime will not be required to pay any taxes up to a maximum of Rs 7 lakh.
Even though the government has granted you tax exemption under the new tax system for salaries up to Rs 7 lakh, you would still gain under the new tax regime even if your salary exceeds Rs 7.80 lakh. Let’s examine how.
Transforming the Tax Landscape for Greater Appeal
To make the new tax regime more appealing than the previous one, the administration made several adjustments to the most recent budget. Up to Rs 3 lakh, you are exempt from paying any taxes under this. On the other hand, you will also receive tax exemption on the remaining Rs 4 lakh, or Rs 3-7 lakh, if your taxable income is up to Rs 7 lakh. Additionally, the government has provided the benefit of two different sorts of deductions to make it more alluring.
Standard Deduction Recap
The previous tax structure gave employees a standard deduction of Rs 50,000. This implies that you will not be required to pay any tax on Rs 50,000, regardless of your wage. It was also incorporated into the new tax structure in the most recent budget. This means that you will only have to pay taxes on your salary up to Rs 7.50 lakh rather than Rs 7 lakh because the standard deduction would remove Rs 50,000 from your taxable income.
Unlocking Additional Exemptions Beyond Standard Deduction
Contributions to NPS through your company can provide you with additional exemptions beyond the standard deduction. 80CCD allows for the tax exemption that each employee receiving NPS is eligible for. Additionally, this contains two sub-sections: 80CCD(1) and 80CCD(2). There is another sub section of 80CCD(1) 80CCD(1B). Under 80CCD(1) and 80CCD(1B), you are exempt from income tax up to Rs 1.5 lakh and Rs 50,000, respectively. However, you are still exempt from income tax up to Rs 2 lakh under 80CCD(2).
Refund for Corporate NPS Investment
You will receive a refund under this for the NPS investment that your company made. By listing this investment as a business expense on their profit and loss statement, many businesses are able to obtain tax exemptions. Private sector workers are eligible to invest up to 10% of their base pay and dearness allowance in NPS, with tax exemptions available. However, if you work for the government, this percentage may as high as 14%.
Understanding the Components of a Rs 7.80 Lakh Bundle
Assume for the moment that your bundle costs Rs 7.80 lakh. Your base pay will be at least 50% of your CTC in such a scenario. In other words, your base pay was Rs 3.90 lakh. You may request that your employer contribute up to Rs. 39,000, or 10% of it, to your corporate NPS account under Section 80CCD(2), with no tax due.
Therefore, if your income is Rs 7.80 lakh, you will receive a regular deduction of Rs 50,000 and a tax exemption of Rs 39,000 on corporate NPS. This will result in a total deduction of up to Rs 89,000, which will lower your taxable income to less than Rs 7 lakh (Rs 6.91 lakh) and eliminate your tax obligation.
NPS Services as a Common Offering
The majority of businesses offer NPS services. You can discuss investing in NPS with your company’s HR department. Your monthly inhand payment will decrease as a result of this investment, which is deducted from your base pay. The benefit is that you will be eligible for more tax exemptions. If your organisation does not have an NPS facility, speak with HR first; he can offer you guidance.
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