Income Tax Slabs Changes From April 1st, 2024: Defaulting to New Tax Regime

Income Tax Slabs Changes:- Starting from April 1, 2024, the beginning of the new financial year (FY 2024-25), there will be significant changes in income tax regulations. These changes were proposed by India’s Finance Minister, Smt. Nirmala Sitharaman, during the budget presentation for 2023.

It’s important to understand that the new tax regime will now be the default option for taxpayers. Since April 1, 2023, taxpayers have had to choose between the old tax regime and the new one. However, from the fiscal year 2023-24 onwards, the new tax regime will be automatically applied unless the taxpayer specifically opts for the old regime.

Let’s explore some key changes that taxpayers need to be aware of for this financial year.

Income Tax Slabs Changes: Understanding the Modifications

As per the budget announcement, the updated tax slab is now in effect for the new tax system. Here are the key changes starting from April 1, 2024:

• The tax slab has been revised, affecting how much tax you need to pay.
• These changes apply to the new tax regime that’s been introduced.
• The adjustments have come into effect as of April 1, 2024.

Benefits of Adopting the New Tax Regime

Advantages of the New Tax Regime for Taxpayers:

Simplified Documentation:

• Under the new tax regime, taxpayers are relieved from the burden of maintaining records such as travel tickets and rent receipts.
• This streamlines the documentation process, reducing the paperwork and administrative hassles for taxpayers.

Simplification of Tax Planning:

• The changes introduced in the income tax rules from April 1, 2024, aim to simplify tax planning for individuals.
• Taxpayers no longer need to engage in complex tax planning strategies, making it easier to understand and comply with tax regulations.

Increased Basic Exemption Limit:

• With the implementation of the income tax rule changes from April 1, 2024, the basic exemption limit has been raised from Rs. 2.5 lakhs to Rs. 3 lakhs.
• This elevated exemption limit makes the new tax regime more attractive to taxpayers, providing relief by reducing the taxable income.
• It’s noteworthy that the highest tax rate of 30% will apply to income exceeding Rs. 15 lakhs, ensuring progressive taxation while offering benefits to a wider segment of taxpayers.

Revised Surcharge Rates: Understanding the Changes

• The new tax regime implementation results in a decrease in the surcharge rate from 37% to 25%.
• This reduction applies specifically to individuals with income surpassing Rs. 5 Crores.
• The reduced surcharge rate is applicable solely for taxpayers who opt for the new tax regime and possess an income exceeding Rs. 5 Crores.

Below is the table illustrating the updated surcharge rate as per the new tax regime:

Revised Rebate Limit: Understanding the Adjustment

Since the introduction of the new tax regime, there has been an upward adjustment in the rebate limit. Previously, under the old tax regime, individuals could avail of a rebate of up to Rs. 12,500 for incomes up to Rs. 5 lakh. However, under the new tax regime, this rebate limit has been doubled to Rs. 25,000 for taxable incomes equal to or less than Rs. 7 lakh. It’s worth noting that the Section 87A rebate remains applicable under both income tax regimes. Furthermore, as part of the budget announcement, the taxable limit has been raised from Rs. 5 lakhs to Rs. 7 lakhs under the new tax regime.

Standard Deduction

The standard deduction for salaried individuals remains consistent at Rs. 50,000 under both the old and new tax regimes.

Recent Additions to Deductions in the Updated Tax Regime

• Deduction for Family Pension: You can deduct up to Rs. 15,000 or one-third of your family pension income, whichever is lower. This means if your family pension is less than Rs. 45,000, you can claim the entire amount of Rs. 15,000 as a deduction.

• Agniveer Corpus Fund Deduction: You can deduct the amount you’ve paid or deposited into the Agniveer Corpus Fund under Section 80CCH(2). This means any money you contribute to this fund can be subtracted from your taxable income, reducing the amount of tax you owe.

Explanation of Tax Exemption for Incomes up to Rs. 7 Lakhs

• When calculating taxes, your income tax is first figured out based on different tax rates.
• After that, any rebate applicable is subtracted from the final tax amount.
• In the 2023 Budget, a new tax regime was introduced, offering a rebate for incomes up to Rs. 7 lakhs.
• This means if your income is Rs. 7 lakhs or less, you won’t have to pay any tax under this new regime.
• Additionally, a standard deduction of Rs. 50,000 was introduced for salaried individuals under this regime.
• So, if you’re a salaried taxpayer earning up to Rs. 7.5 lakhs, you won’t owe any tax if you opt for this new tax regime.

Leave Encashment Exemption: A Detailed Overview

• In the new tax regime, there’s an exemption granted on leave encashment.
• The budget of 2023 significantly increased the exemption limit for leave encashment by 8 times.
• Previously set at Rs. 3 lakhs, the new limit for non-government employees is now Rs. 25 lakhs.
• According to Section 10(10AA), any leave encashment amounting up to Rs. 25 lakhs at retirement is tax-free.

Returning to the Old Tax Regime: Exploring the Process

Transitioning to the New Default Tax Regime from the Financial Year 2023-24

• Starting from the financial year 2023-24, the new income tax regime will be automatically applied as the default tax regime.
• Should you wish to revert to the old tax regime, it’s essential to submit Form 10-IEA during the tax return filing process.
• The frequency of switching between the old and new tax regimes varies based on the type of income.
• For professional or business income, switching is limited to once during your lifetime.
• However, for income types other than professional or business income, you have the flexibility to switch between the old and new tax regimes on an annual basis.

Life Insurance Policies

Changes in Taxation and Rules for Life Insurance Policies

• Starting April 1, 2023, earnings from life insurance policies with yearly premiums exceeding Rs. 5 lakhs will be taxable for the policyholder.
• This rule doesn’t apply to Unit Linked Insurance Plans (ULIPs).
• Earlier, the amount received from a life insurance policy was tax-deductible as long as the premiums didn’t exceed 10% of the sum assured.
• However, some taxpayers misused this exemption by investing in policies with high premiums to claim higher tax exemptions.
• To address this, under the new tax regime, earnings from life insurance policies will be taxable if the yearly premium exceeds Rs. 5 lakhs.

Updates to the Presumptive Taxation Scheme

The Presumptive Taxation Scheme: Simplifying Tax Calculation for Businesses and Professions

• Tax authorities offer the Presumptive Scheme of Taxation to simplify income calculation for eligible businesses or professions.
• Under this scheme, taxpayers can declare their income at a fixed rate based on certain presumptions, rather than maintaining extensive accounting records and undergoing complex calculations.
• The Presumptive Tax Scheme operates similarly under both the old and new tax regimes, providing consistency in tax treatment across different tax systems.

Note: The raised limits apply only if 95% of the receipts come from online methods.

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About the Author

Vijaykumar S. Pal (Content Writer)

As a Accountant, I’m deeply immersed in the intricacies of income tax, GST, and maintaining financial records. Numbers are my forte, and I excel in deciphering complex financial statements and tax regulations. However, there’s another side of me that revels in the realm of words rather than figures. Writing has always ignited a passion within me. Whether it’s simplifying intricate financial concepts for broader comprehension or weaving captivating narratives, I find joy in crafting articles and blog posts that demystify the intimidating world of finance for everyday individuals.