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How to calculate tax liability under the new tax regime for FY23?


The Finance Act 2020 introduced the new concessional tax regime for Individual and HUF taxpayers u/s 115BAC of the Income Tax Act, 1961 (hereinafter referred to as ‘the IT Act’)and accordingly the said new tax regime had been made effective from FY 2020-21 (AY 2021-22) which provides an individual and HUF an option to pay income tax under section 115BAC of the IT Act concessional slab rates subject to certain conditions.

Steps to compute tax liability under new tax regime for FY 2022-23:

(i) Compute the Gross Income (including Income from all heads such as Salary, House Property, Capital Gains, Other Sources)

(ii) Avail the necessary exemptions and deduction. In case the taxpayer is opting for the new concessional tax regime, he cannot avail the following tax exemptions and deductions under the following sections:

· 10(13A) – House Rent Allowance

· 10(5) – Leave travel Concession

· 10(14) – Special allowance detailed in Rule 2BB (such as children education allowance, hostel allowance, etc. other than transport allowance, travel allowance, daily allowance).

· 10(17) – Allowances received by MP, member of state legislature, etc.

· 10(32) – Clubbing benefit of Rs. 1500 per minor child

· 10AA – Deduction for SEZ unit

· Section 16 – Standard Deduction of Rs. 50000, Entertainment Allowance, Professional Tax

· 24(b) – Interest on borrowed loan for a Self Occupied property or Vacant Property u/s 23(2)

· 32(1)(iia) – Additional Depreciation

· 32AD – Investment Allowance for investment in Andhra Pradesh / Telangana / Bihar / West Bengal

· 33AB – Tea / Coffee / Rubber Development

· 33ABA – Site Restoration Fund

· 35(2AA) – Deduction for Payment to National Laboratory or University or IIT

· 35AD – Deduction in respect of specified business

· 35CCC – Expenditure on agricultural extension project

· 57(iia)- Family pension

· Any provision of chapter VI – A – section 80C, 80D etc. However, Section 80CCD(2) (employer contribution on account of employee in a notified pension scheme) can be claimed.

The taxpayer cannot set off any brought forward loss or unabsorbed depreciation attributable to the aforementioned deductions.

(iii) The taxpayer should compute the tax liability as per the rates mentioned below for new tax regime and accordingly compute the tax under the new concessional tax regime u/s 115BAC of the IT Act.

Total Income Income tax rates under old tax regime Income tax rates under new tax regime
Upto Rs. 2,50,000* Nil Nil
Rs. 2,50,001 – Rs. 5,00,000 5% (Note 1) 5% (Note 1)
Rs. 5,00,001 – Rs. 7,50,000 Rs. 12,500 + 20% of total income exceeding Rs. 5,00,000 Rs. 12,500 + 10% of total income exceeding Rs. 5,00,000
Rs. 7,50,001 – Rs. 10,00,000 Rs. 62,500 + 20% of total income exceeding Rs. 7,50,000 Rs. 37,500 + 15% of total income exceeding Rs. 7,50,000
Rs. 10,00,001 – Rs. 12,50,000 Rs. 1,12,500 + 30% of total income exceeding Rs. 10,00,000 Rs. 75,000 + 20% of total income exceeding Rs. 10,00,000
Rs. 12,50,001 – Rs. 15,00,000 Rs. 1,87,500 + 30% of total income exceeding Rs. 12,50,000 Rs. 1,25,000 + 25% of total income exceeding Rs. 12,50,000
Above Rs. 15,00,000 Rs. 2,62,500 + 30% of total income exceeding Rs. 15,00,000 Rs. 1,87,500 + 30% of total income exceeding Rs. 15,00,000

Note 1: Rebate u/s 87A is applicable in case of new tax regime and needs to be availed for the amount of tax payable or Rs. 12,500, whichever is lesser, resulting in NIL tax liability provided the taxpayer’s total income is upto Rs. 5,00,000

Note 2: Any resident senior citizen whose age is more than 60 years but less than or equal to 80 years has basic exemption limit of Rs. 3,00,000. Further, any person who is non-resident individual or HUF or super senior citizen whose age is more than 80 years has basic exemption limit of Rs. 5,00,000.

(iv) Increase the tax computed in step (iii) by Health & Education cess @ 4% and applicable surcharge.

(v) The taxpayer should also compute the tax as per the normal/ old tax regime (as per the rates mentioned above) in order to ascertain the beneficial of the two tax regimes.

Further, any taxpayer availing the option under beneficial tax regime needs to take into consideration the following:

1. The individual taxpayer availing the option u/s 115BAC would be required to file Form 10-IE along with the Income Tax return to be filed u/s 139(1) of the IT Act.

2. The Individual taxpayer may choose whether or not to exercise such option on a year-on-year basis. However, in case of any taxpayer deriving business income, such option once exercised cannot be withdrawn except in cases where the taxpayer ceases to have business income.

3. Individual taxpayers availing the concessional tax regime u/s 115BAC would not be subjected to Alternate Minimum Tax (AMT) provisions. Accordingly, any brought forward AMT credit cannot be set off against income u/s 115BAC of the IT Act.

Which tax regime one should choose?

Gopal Bohra , Partner , N.A. Shah Associates said “Currently the new tax regime is not widely opted by the taxpayers especially those who are paying interest on self-occupied house property and makes investments eligible for deduction under section 80C/80CCD and 80D. The basic exemption limit under both regimes is Rs. 2,50,000/- but if one adds other exemptions which are available under the old regime one will not pay tax on income approx. upto Rs. 7,50,000/- (i.e. basic exemption Rs. 2.50 lacs plus interest on self-occupied house Rs. 2 lacs plus deduction u/s 80C with 80CCD Rs. 2 lacs plus approx. Rs. 1 lac comprising of the standard deduction, Mediclaim premium, interest on saving 80TTA/80TTB etc.) under the old regime whereas under the new regime the tax exemption is of only basic exemption. The majority of the taxpayers who are earning income above say Rs. 10 lacs per annum will have most of the investments eligible for exemptions mentioned above, for them there is no incentive to move to the new tax regime. Unless the government increase the basic exemption limit under the new tax regime to bring parity between the two regimes, a taxpayer would continue with the old, complicated tax regime with multiple tax exemption options.”

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