In the New Tax Slab, income up to Rs 7 lakh will not have to pay tax; Know what changes will happen?

The Central Board of Direct Taxes (CBDT) announced some significant changes in the Income Tax laws in Budget 2023 and the financial year. Although the changes were announced in 2023, you will be affected while filing your Income Tax Return (ITR) in July 2024 and in future financial years. Today we are going to know in detail how these changes in income tax will affect you.

1. Income Tax Slabs Changed: To make the new tax system more attractive, income tax slabs have been changed. The income tax slabs for FY2023-24 under the new tax regime are as follows:

Income Tax Slab - 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 15,00,000 - 20

More than 15,00,000 - 15

Changes in income tax slabs under the new tax system have made them more attractive as compared to the old tax system. These changes will be beneficial for those who could not invest and spend tax savings under the old tax system. Due to the new tax regime, taxpayers in this category often had to pay higher taxes.

2. Increase in Basic Exemption Limit : The basic exemption limit under the new tax regime has been increased from Rs 2.5 lakh earlier to Rs 3 lakh along with changes in income tax slabs. 50 thousand has been increased in this.

If you opt for the new tax system for the financial year 2023-24, you will not need to file an income tax return if your total taxable income does not exceed three lakhs in a financial year.

The increase in the basic exemption limit will help save up to Rs 15,000 (30% of Rs 50,000) for the financial year 2023-24 (AY 2024-25) and those opting for the new tax regime at that time. In contrast, the basic exemption limit in the old tax system is Rs 2.5 lakh. So a person with taxable income between Rs 2.5 lakh to Rs 3 lakh can avail this.

3. New Tax Regime Becomes Default : From 1st April 2023, New Tax Regime becomes Default Tax Regime. It means that if an individual has not decided for TDS or income tax return tax regime from salary or while filing income tax return then the income tax is going to be determined as per the new tax system.

The new tax regime was announced in the 2020 budget session. In April 2023 and March 2023, the new tax regime was voluntary, so you could choose whichever option you wanted.

While filing income tax return in June/July 2024 for FY2023-24, if you do not want to file ITR under new tax regime you will need to opt for old tax regime. After that an individual will not be able to avail normal tax deductions and exemptions like HRA and exemptions under section 80C, 80D etc. as per the new tax regime.

So, if you are paying lower income tax under the old tax system and you don't opt for that method this time, your income tax will be calculated as per the new tax system while filing online ITR and you may have to pay more income tax.

4. Increased Income Tax Rebate: Another change in the new tax regime is the increase in the amount of rebate under Section 87A. The exemption amount has been increased by Rs 12,500, i.e. from Rs 12,500 earlier to Rs 25,000 in the new tax regime. This means that a person opting for the new tax regime and having a taxable income of Rs 7 lakh will be eligible for exemption under Section 87A.

As a result, a person opting for the new tax regime and having a taxable income of up to Rs 7 lakh will not have to pay any tax while filing ITR. Earlier, exemption under Section 87A was available for taxable income up to Rs 5 lakh in the new tax regime. So in 2024 when you file ITR for FY2023-24 (AY 2024-25) and opt for new tax regime with taxable income not exceeding 7 lakhs then no tax is payable.

A point to note is that under the old tax system a deduction of Rs 12,500 is also available but the taxable income must not exceed Rs 5 lakhs.

5. Standard Deduction 50,000 : If you are opting for new tax regime, Rs. A standard deduction of 50,000 will be available for the financial year 2023-24 (AY 2024-25). A standard deduction of Rs 50,000 is available on salary and/or pensionable income. Earlier this was available only if the individual opted for the old tax system.

Under the new tax regime, two deductions will be available for salaried individuals. A person with a taxable income of up to 7.5 lakhs will pay nil tax, with one standard deduction and another under section 80CCD (2) (Employee's contribution to National Pension System or NPS) standard deduction benefit. According to Budget 2023, every salaried person with income of Rs 15.5 lakh or more will benefit Rs 52,500 under the new tax system.

6. No LTCG Benefit in Debt Mutual Funds : Long-term capital gains on investments made in debt mutual funds after March 31, 2023 will not be eligible for taxation. This means that capital gains on debt mutual fund units will be eligible for taxation as LTCG with indexation for 3 years or more.

For debt mutual fund investments made after March 31, 2023, any capital gain-less or A Long Term – This will be taxed at the same rate as the interest earned on fixed deposits. This means the income tax rate will be applicable on this profit as per your income slab. Earlier, Debt Mutual Funds got higher investment LTCG tax benefit than bank FDs due to LTCG tax benefit on capital gains.

But the good thing is that the old LTCG tax rules will be applicable for investments made in debt mutual funds till 31 March 2023.

7. Tax Concessions for Small Taxpayers : Minor tax concessions have been provided under the new tax system for those whose taxable income is marginally more than 7 lakhs in a financial year. Earlier this exemption was available only to taxpayers with taxable income above Rs 50 lakh. This relief is given to individuals who have to pay tax due to a small increase in their income.

According to the new rules, if an individual opts for the new tax system while filing ITR, but the tax on income above Rs 7 lakh is more than Rs 7 lakh, then the person will be eligible for this. In such cases marginal relief can be claimed. No such marginal relief is available to small taxpayers whose taxable income exceeds 5 lakhs under the old tax system.

8. Highest surcharge rate reduced: The surcharge applies on the total tax payable if an individual's taxable income exceeds Rs 50 lakh. Under the new tax regime, the highest surcharge rate of 37% was previously applicable if the total taxable income exceeded Rs 5 crore. If an individual opts for the new tax regime for FY2023-24 (AY 2024-25), the highest surcharge rate has been reduced from 37% to 25%.

The change in surcharge rate will mainly help HNIs especially those earning Rs 5 crore. This change will reduce the maximum tax rate from 42.744% to 39%.

9. Leave encashment tax relief increased : Another big announcement for non-government employees is the increase in tax relief available for leave encashment. The tax exemption limit has been increased from Rs 3 lakh to Rs 25 lakh.

A person usually gets leave encashment amount (if eligible) either on resignation, retirement or on leaving the job. By increasing the limit of this tax relief, an individual can get more leave encashment amount than before. This tax exemption limit of Rs 25 lakh is applicable to the total amount received by an individual during his lifetime.

10. Rent Free House Salary Rules Changed : CBDT has issued new rules for employees who get rent free house from company. The new rules came into effect from 1 September 2023.

According to experts, the new rules are likely to reduce the TDS applicable to such home buyers. This will help increase the salary of such employees. Moreover, the new rules have introduced an inflation-linked cap if the same house is rented to an employee for more than a year.