New tax slabs, no tax on income up to Rs 7 lakh in new tax regime, 13 changes in 2023 that will impact you in 2024, ET BFSI

The year 2023 saw some significant changes in income tax laws announced in the Budget 2023 and during the financial year by the Central Board of Direct Taxes (CBDT). Though the changes were announced in 2023, they will impact you when you pay income tax while filing your income tax return (ITR) in July 2024 and in future financial years.

Here is a look at these income tax changes and how they will impact you in 2024.

1. New tax regime income tax slabs changed: To make the new tax regime more attractive, income tax slabs under this regime were changed.

Income tax slabs for FY2023-24 under the new tax regime are as follows:

Impact: The changes in the income tax slabs under the new tax regime have made it more attractive as compared to the old tax regime. The changes will be beneficial for those who are unable to make tax-saving investments and expenditures in the old tax regime. This category of people often ended up paying higher taxes before the new tax regime became available.Also Read: Income tax slabs for FY 2023-24 (AY 2024-25)

2. Hike in basic exemption limit under new tax regime: Along with changes in the income tax slabs the basic exemption limit under the new tax regime was hiked to Rs 3 lakh from Rs 2.5 lakh earlier – an increase of Rs 50,000.

Impact: If you opt for the new tax regime for FY2023-24 income tax return filing will not be mandatory if your gross taxable income does not exceed Rs 3 lakh in a financial year. A hike in basic exemption limit will also help in saving up to Rs 15,000 (30% of Rs 50,000) for those who are planning to opt for the new tax regime in FY 2023-24 (AY 2024-25) and at the time of filing ITR. As against this, the basic exemption limit in the old tax regime remains Rs 2.5 lakh. So, clearly a person with gross taxable income between Rs 2.5 lakh and Rs 3 lakh is likely to be better off with the new tax regime.

Also Read: Basic exemption limit hiked to Rs 3 lakh in new tax regime

3. New tax regime becomes default tax regime: From April 1, 2023, the new tax regime became the default tax regime. This meant that if an individual does not specify the tax regime for TDS from salary or while filing income tax return, then income tax liability will be calculated on the basis of the new tax regime income tax slabs.

The new tax regime was announced in Budget 2020. Between April 2020 and March 2023, the new tax regime was optional. Unless specifically opted for, the income tax liability continued to be calculated as per income tax slabs of old tax regime.

Impact: While filing income tax return for FY2023-24 in June/July 2024, you will be required to specifically opt for the old tax regime in case you don’t want to file ITR under the new tax regime. The new tax regime does not allow an individual to claim common tax deductions and exemptions such as for HRA and under sections 80C, 80D etc.
Hence, if your tax liability is lower under the old tax regime but you do not opt out, then online ITR form will calculate your tax liability on based on the new tax regime. This can increase your income tax outgo.

Also Read: New tax regime becomes default tax regime

4. Income tax rebate hiked in new tax regime: Another change in the new tax regime is the hike in rebate amount under section 87A. The rebate amount has been hiked by Rs 12,500, i.e. from Rs 12,500 earlier to Rs 25,000 in new tax regime. This means that an individual opting for the new tax regime and having taxable income of Rs 7 lakh will be eligible for rebate under section 87A.

Impact: An individual opting for the new tax regime and having taxable income of up to Rs 7 lakh will not be required to pay any taxes at the time of filing ITR. Earlier, the rebate under section 87A was available for taxable income up to Rs 5 lakh in the new tax regime. Hence, in 2024 when you file ITR for FY2023-24 (AY 2024-25) and opt for the new tax regime with taxable income not exceeding Rs 7 lakh, then no taxes will be payable.

Do note that the rebate of Rs 12,500 is also available under the old tax regime but only if taxable income does not exceed Rs 5 lakh.

Also Read: No income tax payable for incomes up to Rs 7 lakh in new tax regime

5. Standard deduction of Rs 50,000 in new tax regime: If you are opting for the new tax regime, then standard deduction of Rs 50,000 will be available from FY 2023-24 (AY 2024-25). This standard deduction of Rs 50,000 is available on salary and/or pension income. Earlier this deduction was available only if individual opted for the old tax regime.

Impact: There will be two deductions available under the new tax regime for salaried individuals. These are standard deduction and deduction under section 80CCD (2) (Employer’s contribution to the National Pension System or NPS). With the standard deduction benefit, an individual having taxable income of up to Rs 7.5 lakh will end up paying zero tax. According to the budget 2023 speech, each salaried person with an income of Rs 15.5 lakh or more will thus stand to benefit by Rs 52,500 under new tax regime.

Also Read: How salaried, pensioners will pay zero tax in new tax regime

Also Read: Three deductions that can be claimed in the new tax regime

6. No LTCG benefit in debt mutual funds: Investments made in debt mutual funds after March 31, 2023 are not eligible for Long Term Capital Gains taxation on withdrawal. This means that capital gains on debt mutual fund units held for 3 years or more would no longer be eligible for taxation as LTCG with indexation.

Impact: For debt mutual fund investments made after March 31, 2023, any capital gains-short or long term-would be taxed the same as interest earned from fixed deposits. This means that income tax rate on these gains will be applicable as per your income slabs. Previously, debt mutual funds had an edge over bank FDs due to the LTCG tax benefit available on capital gains on the former.

The small relief is that for investments in debt mutual funds made till and on March 31, 2023, old LTCG tax rules will be applicable.

Also Read: No LTCG tax benefit on these debt mutual funds from April 1

7. Marginal tax relief for small taxpayers: A marginal tax relief has been introduced under the new tax regime for those with taxable income marginally exceeding Rs 7 lakh in a financial year. Earlier this relief was available only for taxpayers having taxable income exceeding Rs 50 lakh. The relief is offered for individuals whose marginal hike in income leads to higher tax outgo.

Impact: As per the new rule, if an individual opts for the new tax regime while filing ITR, but the tax on income exceeding Rs 7 lakh is more than the amount by which the income exceeds Rs 7 lakh, then the individual will be eligible to claim marginal relief in such cases.

Do note that no such marginal relief is available for small taxpayers under the old tax regime whose taxable income exceeds Rs 5 lakh.

Also Read: Marginal relief introduced for incomes exceeding Rs 7 lakh in new tax regime

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

Impact: The change in the 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%.

Also Read: Highest surcharge on personal income tax reduced to 25%

9. Tax exemption hiked on leave encashment: Another major announcement for non-government employees was hike in tax exemption available on leave encashment. The tax exemption limit has been hiked from Rs 3 lakh to Rs 25 lakh.

Impact: An individual usually receives leave encashment (if eligible for it) either at the time of resignation, retirement or any other event where he/she leaves a job. By hiking this tax exemption limit, an individual will be able to get more tax exempted leave encashment income as compared to earlier. This tax exemption limit of Rs 25 lakh is applicable for the total of all such amounts received in an individual’s lifetime.

Also Read: Tax exemption limit hiked to Rs 25 lakh for non-government employees

10. Rules for rent free house salary changed: The CBDT issued new rules for employees receiving rent-free accommodation from their employers. The new rules came into effect from September 1, 2023.

Impact: According to tax experts, the new rules are likely to lower the TDS applicable on rent-free accommodation. This will help a salaried individual to get a higher take-home pay. Further, the new rules have introduced inflation-linked cap if the same house is given on rent for more than one year to an employee.

Also Read: New CBDT rules on rent-free house perk

11. Life insurance maturity money will not be fully tax-exempt: Budget 2023 announced a limit on the tax-free maturity amount from non-ULIP life insurance policies. As per the announcement, if the total premium paid on all non-ULIP life insurance policies exceed Rs 5 lakh in a financial year, then maturity amount will be taxable.

Impact: The CBDT issued rules for calculation of taxable maturity amount in case of the abovementioned policies. The taxable maturity amount will be calculated only if the life insurance policies meet the specified criteria such as total amount of premium paid for single or multiple non-ULIP insurance policies.

Do note that for life insurance policies issued till March 31, 2023, the maturity proceeds will continue to remain tax exempt irrespective of the premium amount paid. Only life insurance policies issued on or after April 1, 2023 will be impacted by these rules.

Also Read: Now life insurance maturity money will not be fully tax exempt

For ULIP policies, the maturity amount is taxable if the premium payable exceeds Rs 2.5 lakh in a financial year.

12. Limit on capital gains deductions from property sale to Rs 10 crore: The government has put a limit of Rs 10 crore on the maximum deduction that can be claimed from capital gains arising from sale of residential property. These deductions are claimed under Section 54 and Section 54F of the Income-tax Act, 1961. Due to this, government has also put up a cap for investment in Capital Gains Account Scheme as well.

Impact: Till March 31, 2023, there was no limit on the amount of capital gains that were eligible for tax deduction for reinvestment through house property. The new change will impact individuals especially HNIs who sell their old house and reinvest the amount in new property to save tax on LTCG.

Also Read: Investment in residential property for capital gains capped at Rs 10 crore

13. Discard ITR: In 2023, the income tax department launched the Discard return option. This feature allows individuals to completely delete their unverified ITR.

Impact: This feature will help an individual to delete their previously submitted ITR provided it was not verified. Further, this will help an individual to go through the revised ITR filing process if a mistake is discovered after the ITR is submitted but before it is verified.

Also Read: Discard return introduced by income tax department

14.TDS on online game winnings: The government has removed the threshold that was applicable for deduction of tax on winnings from online games. Till March 31, 2023, TDS on winnings from online games was applicable if it exceeded Rs 10,000 in a financial year. However, from April 1, since there will be no threshold, TDS will be applicable for every rupee won.

Impact: TDS on online winnings will be deducted at 30%. Hence, if you have won Rs 1,000 by playing online games, then Rs 300 will be deducted and deposited with the government. If the tax is deducted more than your taxable income, then you will be required to file ITR to claim income tax refund.

Also Read: New TDS rule announced in Budget 2023 for online games winnings

15. Relief on higher TDS for non-ITR filers: A relief on higher TDS was announced in Budget 2023 for those who are not mandatorily required to file ITR. The definition of ‘Specified persons’ was amended to exclude the individuals who are not mandatorily required to file ITR in a financial year.

Impact: This a big relief for those individuals who were mandatorily not required to file ITR but were subject to higher TDS on their income due to non-filing. A higher TDS was applicable on their income from bank FDs, dividend income and other specified incomes. Now such individual’s income will not have higher deduction of taxes due to non-filing of ITR. In 2024 to avoid higher TDS, they will not be required to file ITR.

Also Read: Relief on higher TDS for non-ITR filers in Budget 2023