Income Tax Changes From 1st April 2024: New Tax Regime Will Be Default

With the start of the new fiscal year (FY 2024-25), there will be some noteworthy changes. These changes will be implemented from April 1, 2024. The corresponding changes from April 1, 2024, will add new regulations or reforms to the prevailing ones. India’s Finance Minister, Smt. Nirmala Sitharaman has presented several income tax rule changes in the budget 2023.

It is important to note that this new tax regime has been introduced as the default tax regime. From fiscal year 2023-24 (from April 1, 2023), taxpayers will have to opt for either the old tax regime or the new tax regime, and the new tax regime will be the default tax regime for FY 2023-24. Let’s go through some prominent changes that will affect taxpayers in this financial year.

Modifications in the Income Tax Slabs

According to the announcement made under the budget, the revised tax slab applies to the new tax regime. The corresponding changes from April 1, 2024, are highlighted below.

Total Income	Tax rate
₹0 to ₹3,00,000	0%
₹3,00,001 to ₹6,00,000	5%
₹6,00,001 to ₹9,00,000	10%
₹9,00,001 to ₹12,00,000	15%
₹12,00,001 to ₹15,00,001	20%
Above ₹15,00,000	30%

Advantages of the Implementation of New Tax Regime

The following are the advantages of the new tax regime to taxpayers:

• With the introduction of the new tax regime, taxpayers need not maintain a track record of travel tickets and rent receipts.
• The income tax rule changes from April 1, 2024 make sure taxpayers can get rid of complex tax planning as these changes aim to simplify tax planning.
• With the introduction of the income tax rule changes from April 1, 2024, the basic exemption limit has been elevated from Rs.2.5 lakhs to Rs.3 lakhs. This increased exemption limit makes the novel tax regime more appealing. Note that the highest tax rate, i.e., 30%, will be imposed on income exceeding Rs.15 lakhs. 

Changes in the Surcharge Rate

• The implementation of the new tax regime leads to a reduction in the surcharge rate from 37% to 25%. This is applicable for individuals with income exceeding Rs.5 Crores.
• This reduced surcharge rate is valid only for those taxpayers who choose the new tax regime and have an income exceeding Rs.5 Crores.

The following table shows the updated surcharge rate according to the new tax regime:

Taxable Income Limit	Surcharge Rate on the Value of Income Tax
	Before Introducing Budget 2023	After Introducing Budget 2023
< ₹50 lakhs	0%	0%
₹50 lakhs to ₹1 Crore	10%	10%
₹1 Crore to ₹2 Crore	15%	15%
₹2 Crore to ₹5 Crore	25%	25%
> ₹5 Crore	37%	25%

Change in the Rebate Limit

The introduction of the new tax regime has increased the rebate limit. As per the old tax regime, the applicable rebate limit is Rs.12,500 for incomes up to Rs.5 lakhs. However, under the new tax regime, this rebate limit has increased to Rs.25,000 if the taxable income is less than or equal to Rs.7 lakhs. Note that the Section 87A rebate is applicable under both income tax regimes. Then, the budget announcement increased the taxable limit to Rs.7 lakhs from Rs.5 lakhs under the new tax regime.

Standard Deduction

Salaried individuals' standard deduction under both the old and the new regime is Rs.50,000.

Other Deductions newly added under the new regime

• Deduction from family pension income of  Rs.15,000 or 1/3rd of the pension (whichever is lower).
• Deduction of the amount paid or deposited in the Agniveer Corpus Fund under Section 80CCH(2).

Why No Income Tax Applies for Income up to Rs. 7 lakhs

• When calculating taxes, the income tax will be first calculated according to the slab rates. Subsequently, the rebate will be deducted from the final tax amount, ultimately lowering it down to zero.
• In Budget 2023, under the new tax regime, a tax rebate was introduced on an income less than or equal to Rs. 7 lakhs. It implies that taxpayers who choose the new tax regime don’t have to pay tax if their income doesn’t exceed Rs. 7 lakhs. Hence, it is said that no income tax applies to income up to Rs. 7 lakhs.
• The standard deduction of Rs. 50,000(for salaried individuals) was introduced as per the new tax regime. So, a taxpayer(receiving salary) with income less than or equal to Rs. 7.5 lakhs don’t have to pay tax if they opt for the new tax regime.

Exemption on Leave Encashment

Under the new tax regime, you will obtain an exemption on leave encashment. In the budget 2023, the exemption limit for leave encashment was raised 8 times i.e. from Rs. 3 lakhs to Rs. 25 lakhs for non-government employees. So, at retirement, the leave encashment amounting up to Rs. 25 lakhs is free from tax, as per Section 10(10AA). 

Switching Back to the Old Tax Regime

• From the financial year 2023-24, the new income tax regime will be valid as the default tax regime.
• If you plan to switch back to the old tax regime, submitting a form (Form 10-IEA) is vital while filing the tax return.
• The frequency of switching between old and new tax regimes depends on the type of your income. If it's professional or business income, you can switch between old and new tax regimes only once during the lifetime. But if the income type is other than professional/business income, you can switch between the old and new tax regimes yearly.

Life Insurance Policies

• According to the Budget 2023 announcement, from April 1, 2023, the earnings from life insurance policies with a yearly premium of over Rs. 5 lakhs will be taxable to the policyholder. Note that the corresponding income tax rule changes will not apply to Unit Linked Insurance Plans (ULIPs).
• The amount obtained from a life insurance policy is tax-deductible until the premiums remunerated on the policy does not surpass 10% of the sum assured.
• But, there were circumstances in which taxpayers misused this exemption by investing in policies with high premium offerings and asking for higher tax exemptions. So, under the new tax regime, the amount obtained from life insurance policies will be taxable if the yearly premium remunerated surpasses Rs. 5 lakhs in a year.

Changes in the Presumptive Taxation

The presumptive scheme of taxation is a simplified method provided by tax authorities to compute taxable income for certain eligible businesses or professions. Under this scheme, taxpayers are allowed to declare income at a prescribed rate based on certain presumptions rather than maintaining detailed books of accounts and undergoing complex calculations. The presumptive tax scheme works identically in both the old and new tax regimes.

Category	Turnover Receipts Before Budget 2023	Turnover Receipts After Budget 2023
Small Business Owners (as per Section 44AD)	Rs. 2 Crore	Rs. 3 Crore*
Specified Professionals (such as lawyers, doctors, freelancers, engineers, interior decorators, etc. (as per Section 44ADA)	Rs. 50 lakhs	Rs. 75 lakhs*

The increase in limits is subject to a condition that 95% of the receipts must be through online modes.

Related Articles:
1. New Tax Regime 2024: All Your Questions Answered
2. Ways to Save Income Tax On New Tax Regime for FY 2023-24

Frequently Asked Questions

Can tax benefits be claimed under section 80C as per the revised tax regime?

No, If you choose the new tax regime, you can’t claim tax benefits (under section 80C).

How to choose between the old and new tax regime?

With the help of the ClearTax income tax calculator, it is easy to compute the tax that will be saved under each of these regimes. Subsequently, you can choose the tax regime that provides the most benefits.

Are investments made in PF and VPF tax deductibles under the new tax regime?

No, investments like VPF and PF are deductible under section 80C. However, this deduction is not applicable under the new tax regime.

Will the amount from the Agniveer Corpus Fund amount be tax deductible in old and new tax regimes?

The withdrawals made from the Agniveer Corpus Fund are exempt from tax under both the old as well as new tax regimes (according to Section 10(12C)). Individuals who have joined the Agnipath scheme can make funding to the Agniveer Corpus Fund. Moreover, the government shall make an equal contribution. These two contributions will be tax deductible from the income as per the new section 80CCH. Moreover, the amount obtained at the termination of your tenure would be exempt from tax under the recently introduced section 10(12C).