The new Income-Tax regime will be the default option with effect from Assessment Year 2024-25 (Fiscal Year 2023-24). However, the choice to remain with the old tax regime will still be available for the taxpayer but he will have to specify his option.
The new Income Tax regime, introduced in 2020, allows taxpayers to pay tax rates at lower rates, but only when he/she does not avail of any exemption such as tax benefit for investing in life insurance and/or health insurance policy, depositing in small savings or repayment of housing loans, etc. The scheme failed to attract people. So, some changes have been made now to widen its appeal and adoption.
The first change is that those earning up to ₹7 lakh will not have to pay tax in the new regime. Earlier, this limit was ₹5 lakh and it was the same for old regime too. Now, there is no change in old regime, which means income up to ₹5 lakh only gets the benefit of no tax, if taxpayers opt for the old regime which means taking benefit of exemptions.
This will be applicable for income-tax payable in respect of the total income of a person, being an individual or Hindu undivided family or association of persons (other than a cooperative society], or body of individuals, whether incorporated or not, or an artificial juridical person.
The Budget lowered number of slabs to five from six. This will provide major relief to all tax payers in the new regime. “An individual with an annual income of ₹9 lakh will be required to pay only ₹45,000. This is only 5 per cent of his or her income. It is a reduction of 25 per cent on what he or she is required to pay now, ie, ₹60,000.”
Further, an individual with income of ₹15 lakh would be required to pay only ₹1.5 lakh or 10 per cent of his or her income, a reduction of 20 per cent from the existing liability of ₹1,87,500.
Another proposal is related to standard deduction. The salaried class and pensioners, including family pensioners, will now have the benefit of standard deduction to the new tax regime. Each salaried person with an income of ₹15.5 lakh or more will thus stand to benefit by ₹52,500.
Another proposal relates to reduction in surcharge for people in higher tax bracket. At present highest income tax rate, including cess and surcharge is 42.74 per cent. This is among the highest in the world. The Finance Minister proposed to reduce the highest surcharge rate from 37 per cent to 25 per cent in the new tax regime. This will result in reduction of the maximum tax rate to 39 per cent.
One more proposal which could benefit non-government salaried class is raising the limit for tax exemption on leave encashment on retirement to ₹25 lakh from ₹3 lakh.