Several changes are taking place to the income tax regime taking effect from the new financial year begins on April 1, 2024.
Ist April, 2024, will also witness the implementation of most Budget 2023 proposals regarding income tax. Therefore, it is important to know what these changes are and how to prepare for the new tax changes that will take place in the financial year 2024-2025.
In her last Union Budget speech, Finance Minister Nirmala Sitharaman had outlined various changes set to take effect from this day onward, impacting our finances. Here’s a breakdown of some key changes to be aware of, including expanded basic exemption limits and more.
New Tax Regime Default Option
A significant change that will be implemented from April is the default adoption of the new tax regime, aimed at simplifying the tax filing process. The new regime offers reduced tax rates, albeit with fewer deductions and exemptions. However, taxpayers retain the freedom to adhere to the old tax regime if it proves more advantageous to them.
Basic Exemption Limit and Rebate
Effective April 1, 2023, the basic exemption limit under the new tax regime has been raised to Rs 3 lakh from Rs 2.5 lakh, as announced in the Budget. Additionally, the rebate under Section 87A of the Income Tax Act, 1961, has been increased to Rs 7 lakh from Rs 5 lakh. Therefore, people with a taxable income of up to Rs 7 lakh under the new regime will benefit from a full tax rebate, eliminating their income tax liability.
New Tax Slabs
Under the new tax regime, the revised tax slabs are as follows:
Income between ₹3 lakh and ₹6 lakh: Taxed at 5%
Income between ₹6 lakh and ₹9 lakh: Taxed at 10%
Income between ₹9 lakh and ₹12 lakh: Taxed at 15%
Income between ₹12 lakh and ₹15 lakh: Taxed at 20%
Income above ₹15 lakh: Taxed at 30%
Restoration of Basic Deduction
One of the key changes that is going to benefit the new regime taxpayers would be the standard deduction of Rs 50,000, previously applicable only to the old tax regime. It has now been incorporated into the new tax regime. This serves to further reduce taxable income under the new system.
Reduction In Surcharge
The highest surcharge rate of 37% on income exceeding Rs 5 crore has been reduced to 25%, resulting in a reduced effective tax rate for individuals with high incomes who opt for the new regime.
Life Insurance Taxation
Effective April 1, 2023, maturity proceeds from life insurance policies issued where the total premium exceeds Rs 5 lakh will be subject to taxation.
Leave Encashment
There is good news for non-government employees this time. The tax exemption limit for leave encashment on retirement of non-government employees, previously set at Rs 3 lakh since 2022, has now been increased to Rs 25 lakh.
In conclusion, these changes signal a new financial landscape, highlighting the importance of staying informed and proactive in managing your personal finances in the new financial year. As the new financial year unfolds, you must be aware of these alterations to optimise your financial planning and tax strategies more effectively.
