In Budget 2023, a new personal income tax regime system for individual taxpayers was unveiled. Taxpayers will be able to select between the current/old tax regime and the new tax regime starting in FY 2020–21. By choosing the previous tax system, the taxpayer can continue to take use of current tax benefits such house rent allowance, LTC Cash Voucher Scheme, and section 80C, 80D, etc. of the Income-tax Act of 1961.
Despite the fact that the new updated tax regime has lower tax rates than the old tax regime, choosing the new regime will require the taxpayer to sacrifice the majority of tax deductions and exemptions that are offered under the old regime.
To make the new tax system more beneficial for taxpayers, Budget 2023 announced revisions and updated the tax slabs.
In this article, we have clarified a few key issues with the updated new tax system.
What are the revised new tax regime’s income tax slab and tax rates?
The income tax slabs under the new income tax regime will now be as follows, according Budget 2023: (effective from April 1, 2023).
The updated income tax rates under the new tax law for the fiscal years 2023–24 (AY 2024-25)
| Income tax slabs under new tax regime | Income tax rates under new tax return |
| 0-3 Lakhs | Nil |
| 3-6 Lakhs | 5% |
| 6-9 Lakhs | 10% |
| 9-12 Lakhs | 15% |
| 12-15 Lakhs | 20% |
| Above 15 Lakhs | 30% |
What percent has the basic exemption limit increased under the new updated tax system?
You would save Rs 2500 thanks to Budget 2023’s increase in the basic exemption level from Rs 2.5 lakh to Rs 3 lakh under the new revised tax system.
What is the amount of the surcharge under the updated new tax system?
Prior to its reduction to 25%, the maximum surcharge rate, which previously applied to individuals with incomes beyond Rs 5 crore, was 37%. As a result, any income over Rs 2 crore will be subject to a 25% surcharge as of April 1, 2023.
What has changed in the new updated tax system?
Once the recommendations are approved by Parliament, the amendments that were proposed on February 1st, 2023 will take effect on April 1st, 2023 for the fiscal year 2023–24.
The following are the modifications to the new tax system that have been announced for the fiscal year 2023–2024, which begins on April 1, 2023:
- The baseline exemption amount has been raised from Rs 2.5 lakh to Rs 3 lakh under the new income regime.
- The taxpayers’ default choice is the new tax system. However, they do have the choice of going back to the old tax system.
- Income tax slabs have been updated in accordance with the new tax system.
- A standard deduction of Rs. 50,000 has been established under the new tax structure, but only for salaried individuals and retirees.
Under the new tax law, the Section 87A rebate has been increased for taxable incomes up to Rs 7 lakh. If a person elects the new tax system in FY 2023–2024, they will not be required to pay any taxes if their taxable income is less than Rs 7 lakh.
Has the previous tax system undergone any modifications for FY 2023–2024?
The former tax structure has not been altered for FY 2023–2024. The income tax rates and slabs from the previous tax system are still in place for FY 2023–2024. Additionally, the exemptions and deductions that were available under the previous tax code are still available. Under the previous tax system, a rebate under Section 87A is provided if taxable income is less than Rs 5 lakh.
What does the former tax system’s basic income exemption offer?
The previous tax system provided varying basic income exemption thresholds based on the taxpayer’s age. For those under 60, the basic income exemption threshold is Rs 2.5 lakh. Seniors 60 years of age and above who are under 80 years of age are eligible for a basic exemption up to Rs 3 lakh. For super elderly individuals who are 80 years of age or older, the fundamental exemption threshold is Rs. 5 lakh.
Is the newly modified tax system the default choice?
The new tax system will be the default starting in FY 2023–2024. An individual or Hindu Undivided Family (HUF) must choose between the old and new tax regimes each fiscal year. This is relevant if they don’t make any money from their business.
The new income tax regime is available to individual taxpayers and HUFs with company income. However, once they have chosen to participate, they will only ever have one chance to switch back to the previous tax system. Once they choose the old income tax system, they cannot adopt the new one in subsequent fiscal years.
What types of tax breaks are offered under each income tax system?
Both income tax systems now offer a different amount for the Section 87A rebate. If the taxable income did not exceed Rs 5 lakh, a maximum Rs 12,500 rebate was allowed under the previous tax system. On the other hand, starting on April 1, 2023, the new tax system will offer a Rs 25,000 rebate if your taxable income is less Rs 7 lakh. For incomes up to Rs. 5 lakh, the existing tax system will continue to offer a rebate of Rs. 12.50.
What happens if a salaried person does not specifically state that they desire to choose the old tax system?
Beginning on April 1, 2023, if a salaried person does not specifically state that they prefer the existing tax system, their employer will by default deduct taxes on salary income based on the new tax system. However, it should be remembered that once a regime is chosen, it cannot be altered during the fiscal year. However, regardless of the tax regime specified by the employer, he or she may select any tax regime when filing an income tax return.
What deductions are still prohibited under the updated new tax law, which will go into force in April 2023?
The individual will forfeit 70 tax deductions and exemptions under the new updated tax law, including the HRA tax deduction, LTA tax deduction, and Section 80C deductions up to Rs 1.5 lakh. Under the amended new tax regime, a standard deduction of Rs. 50,000 has been added.
What all tax deductions are still permitted under the updated new system?
Under the new tax law, a person cannot claim regularly used deductions. But starting on April 1, 2023, a person can deduct Rs 50,000 as a basic deduction from their pay income in addition to a deduction under Section 80 CCD (2) of the Income-tax Act of 1961. Section 80CCD permits the deduction of the employer’s Tier-I NPS account contribution (2). The most that can be deducted in a fiscal year is 10% of base salary plus the dearness allowance (DA). Government employees may deduct up to 14% of their basic wage plus the dearness allowance.
A taxpayer who chooses the new tax system is not permitted to claim any tax breaks or exemptions, with the exception of the deduction allowed by section 80CCD(2) of the Income-tax Act of 1961.
Can I switch to the old tax system the following year if I pick the new one this year?
Yes, as long as they do not have company income, a person may return to the previous tax system the next year.
Who is unable to alternate between the two systems every year?
According to income tax legislation, taxpayers with company income are not permitted to alternate annually between the current tax system and the new tax system. As long as they don’t have business income, salaried people and retirees would be able to switch between the new and old tax systems whenever it was most convenient for them.
Can a consultant who works under both regimes switch between them every year?
The income of a consultant is reported as business income rather than salary income. As a result, consultants will not be able to alternate between the new and old regimes each year.
Can I use the section 80C deduction under the new, updated tax law?
No, you cannot claim the section 80C tax benefit if you adopt the new tax system.