ITR Submitting: New tax regime might lead to decrease tax liability- examine skilled calculations

The Finance Act, 2023 has made the brand new tax regime underneath part 115BAC(1A) because the default tax regime for people/HUFs/AOPs (apart from co-operative societies)/BOIs and synthetic juridical individuals.  Thereafter, vide the successive Finance Acts, the charges had been additional rationalized by the Finance No.2 Act 2024 and Finance Act 2025 –

Revenue tax fee for AY 2024-25, AY 2025-26, AY 2026-27

Concessional tax slabs and fee underneath new or default tax regime decrease tax legal responsibility

 CA Charanjot Singh Nanda, President of ICAI. famous that nder the default tax regime underneath part 115BAC(1A), complete revenue is computed with out offering for exemptions/deductions in respect of LTC (u/s 10(5)), HRA u/s 10(13A), different allowances underneath part 10(14),  curiosity deduction for self-occupied property, extra depreciation, contribution for scientific analysis, Chapter VI-A deductions u/s 80C/80CCC/80CCD(1)/(1A)/80D (medical insurance coverage premium)/80DD (deduction in respect of upkeep together with medical therapy of a dependent who’s an individual with incapacity)/80DDB(quantity paid for medical therapy of specified illnesses)/80TTA (curiosity on financial savings checking account)/80TTB (curiosity on deposits in case of senior residents and so forth.

Nonetheless, increased normal deduction of upto Rs.75,000is obtainable from A.Y.2025-26 underneath the default tax regime u/s 115BAC(1A) vis-à-vis the usual deduction of upto Rs.50,000 underneath the common provisions of the Act.

Additionally, from A.Y.2026-27, rebate u/s 87A is accessible for complete revenue of upto Rs.12 lakh underneath the default tax regime u/s 115BAC(1A); and the utmost rebate is Rs.60,000.

Nonetheless, underneath the elective tax regime as per the common provisions of the Act, rebate u/s 87A is accessible for complete revenue of Rs.5 lakh; and the utmost rebate is Rs.12,500.

Regardless that majority of the tax incentives will not be obtainable underneath the default tax regime u/s 115BAC(1A), the tax legal responsibility is way lowerunder this regime as in comparison with the tax computed underneath the conventional provisions of the Act.  This is because of concessional tax slabs and charges underneath the default tax regime.

The tax slabs and charges for A.Y.2024-45/2025-26/2026-27 underneath the conventional provisions of the Act are given under –

The above could be the profit if no deductions are claimed by the assessee (underneath the common provisions of the Act). 

Instance

Allow us to take the case of a salaried worker Mr. A who attracts a gross wage of Rs.30 lakh for A.Y.2026-27.  He has curiosity on self-occupied property of Rs. 2 lakh, he has deposited Rs.1,50 lakh in PPF, paid medical insurance coverage premium of Rs.25,000, has curiosity on financial savings financial institution of Rs.20,000.  We will compute his complete revenue underneath the default tax regime and regular provisions of the Act for A.Y.2026-27

It may be seen that inspite of claiming curiosity deduction of Rs.2 lakh and chapter VI-A deductions of Rs.1.85 lakh, the tax payable by Mr. A is Rs.6,11,520 underneath the conventional provisions of the Act whereas underneath the default tax regime inspite of non-availability of deductions, the tax payable is barely Rs.4,82,040, which is decrease than the tax payable  of Rs.6,11,520 payable underneath the common provisions by Rs.1,29,480.

Additionally, since there is no such thing as a requirement to make investments compulsorily for claiming tax deductions, the take residence pay underneath the default tax regime u/s 115BAC(1A) could be increased. 

In a nutshell, the default tax regime u/s 115BAC(1A) is extra useful to a taxpayer though complete revenue is computed with out deductions and exemptions which can be found if he opts out and pays tax underneath the common provisions.  That is due to the concessional tax slabs and charges underneath the default tax regime.    

Circumstances the place determination on alternative of previous and new tax regime is to be taken after cautious analysis

It might be famous that in sure instances like, in case of assesses  paying excessive lease and eligible for exemption u/s 10(13A) and having LTC profit u/s 10(5) in addition to deductions underneath Chapter VI-A, they have to do their calculations underneath each the default tax regime and elective  tax regime and discover out which is extra useful to them.