May 11, 2023
Indias income tax system has recently undergone significant changes, offering taxpayers a choice between the new and old tax systems. One important aspect to consider when evaluating these options is the concept of border relief. In this blog, we explore the marginal benefits of the new tax system and compare it with the old tax system for the income tax year 2023-24. By understanding these nuances, you can make an informed decision about which tax system is best for your financial situation.
What is a special discount?
Marginal benefit is a provision introduced to relieve higher taxes for people in certain income groups. This ensures that taxpayers are not overtaxed due to a small increase in income that could push them into a higher tax rate. This mitigation mechanism helps to maintain the fairness of the tax system.
Comparison: new tax system vs. Old tax system
New tax system:
The new tax system introduced in 2020 offers reduced tax rates and fewer deductions and exemptions. This creates a simpler structure and eliminates the need for taxpayers to claim multiple deductions. However, it does not provide specific provisions on special benefits.
Old tax system:
The old tax system, which was the standard tax structure before the new system was introduced, contains a border relief provision. This provision helps people in certain income brackets by limiting the tax liability in cases where the amount of tax calculated according to the tax plates exceeds a certain percentage of their income. Example image:
Lets look at an example to understand how the marginal discount works:
Suppose the total income of a person is Rs. 10,50,000 for the income tax year 2023-24.Under the new tax regime, the tax liability will be calculated based on the applicable slabs resulting in a tax of Rs. 75,000.
In the old tax system, if a person belongs to Rs. 10 lakh to Rs. 12.5 lakh, they would have a tax liability of Rs. 78,500.However, if the limited exemption is availed, the amount of tax is limited to Rs. 75,000 which is the tax under the new tax system.
When evaluating the new tax system for the income tax year 2023-24 compared to the old tax system, it is important to consider the concept of border relief. Although the new tax system offers reduced taxes and simplified calculations, it does not contain special provisions on special benefits. On the other hand, the old tax system offers a border allowance that can limit the tax liability of people in certain income categories.