The Union Government introduced a new tax scheme in the 2020 Budget under Section 115BAC, which provided preferential tax slab rates for taxpayers who were willing to forego certain deductions and exemptions. As per the Budget 2023, the government has forecast the following key changes for the financial year (F.Y) 2023-24:
Rationalization of Income Tax Slabs:
| Income Tax Slabs | Tax Rates (in % p.a.) |
|---|---|
| Up to Rs. 3 lakhs | NIL |
| Rs. 3 lakhs – Rs. 6 lakhs | 5% |
| Rs. 6 lakhs – Rs. 9 lakhs | 10% |
| Rs. 9 lakhs – Rs. 12 lakhs | 15% |
| Rs. 12 lakhs – Rs. 15 lakhs | 20% |
| Above Rs. 15 lakhs | 30% |
In addition to the above tax rates, taxpayers will also be required to pay an education cess of 4% p.a. of their taxable income.
The new tax system introduced under Section 115BAC of the Income Tax Act 1961 provides increased tax refund limits for taxpayers. Under this regime, taxpayers can avail a full tax refund on income up to Rs. 7 lakhs, which is higher than the tax rebate limit of Rs. 5 lakhs in the old tax regime for F.Y 2023-24.
The key points to note regarding the tax refund limits under the new tax regime are:
- Full tax refund is provided on income up to Rs. 7 lakhs under the new tax regime U/Section 87A of the Income Tax Act 1961.
- The tax rebate limit under the old tax regime for F.Y 2023-24 is Rs. 5 lakhs, which is lower than the tax refund limit provided under the new tax regime.
- Taxpayers who claim the standard deduction of Rs. 50,000 with a capital limit of Rs. 7.5 lakhs do not have to pay any tax.
The new tax regime introduced under Section 115BAC of the Income Tax Act 1961 provides an increase in the basic tax exemption limit. The lower tax exemption limit of Rs. 2.5 lakhs as per the old tax regime has been increased to Rs. 3 lakhs under the new tax system for F.Y 2023-24.
The basic tax exemption limit for different age categories under the old and new tax regimes are as follows:
| Age Categories | Basic Tax Exemption Limit u/ Old Tax Regime for F.Y 2023-24 | Basic Tax Exemption Limit u/ New Tax Regime for F.Y 2023-24 |
|---|---|---|
| < 60 Years of Age | Rs. 2.5 lakhs | Rs. 3 lakhs |
| 60-80 Years of Age | Rs. 3 lakhs | Rs. 3 lakhs |
| 80 Years of Age | Rs. 5 lakhs | Rs. 5 lakhs |
It is important to note that the final exemption limit will apply from 1 April 2023 if a new tax system is chosen. Also, these exemption limits are subject to change, and the government may announce further changes during the presentation of the Union Budget 2023-24. It is advisable to stay updated on any announcements made by the government regarding the basic tax exemption limits for the upcoming financial year.
Here’s a comparison of the deductions under the old vs. new tax regimes for FY 2023-24:
| Deductions | Old Tax Regime | New Tax Regime |
|---|---|---|
| Basic tax exemption limit | Up to Rs. 2.5 lakhs | Up to Rs. 3 lakhs for age below 60 years, Rs. 3 lakhs for 60-80 years, and Rs. 5 lakhs for above 80 years |
| Income tax slabs and rates | Slabs and rates unchanged | Rationalized tax slabs with preferential rates up to Rs. 15 lakhs, as mentioned earlier |
| Standard deduction | Up to Rs. 50,000 | Up to Rs. 50,000 |
| Health insurance premium | Up to Rs. 25,000 | Up to Rs. 50,000 for senior citizens, and up to Rs. 25,000 for others |
| Interest on home loan | Up to Rs. 2 lakhs for self-occupied property | Up to Rs. 2 lakhs for self-occupied property |
| Donation to charitable institutions | Up to 50% of the amount donated | Up to 100% of the amount donated for certain eligible institutions |
It is important to note that the old and new tax regimes have their own advantages and disadvantages, and taxpayers should carefully evaluate their options before choosing one. The government may also announce further changes during the presentation of the Union Budget 2023-24, so it is advisable to stay updated on any announcements made by the government.
Under the new tax system, certain tax deductions and exemptions are not claimable. These include:
- Standard deduction on income from rent: The standard deduction of 30% on income from rent is not available under the new tax regime.
- Leave Travel Allowance (LTA): LTA is not available as a deduction under the new tax regime.
- House rent allowance (HRA): HRA is not available as a deduction under the new tax regime.
- Conveyance allowance: Conveyance allowance is not available as a deduction under the new tax regime.
- Medical reimbursement: Medical reimbursement is not available as a deduction under the new tax regime.
- Interest on housing loan for a second home: The deduction on interest paid on a housing loan for a second home is not available under the new tax regime.
- Deduction on investment in Public Provident Fund (PPF) and other tax-saving fixed deposits: The deduction on investment in PPF and other tax-saving fixed deposits is not available under the new tax regime.
It is important to note that taxpayers can choose between the old and new tax regimes based on their individual financial situation and tax planning needs.
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