The Finance Minister, Nirmala Sitharaman in the Budget 2020 introduced a new tax regime u/s 115BAC of Income Tax Act, 1961. The new tax regime is available only to individuals and HUF. The new regime comes with reduced income tax slab rates and the removal of rebates, exemptions, and deductions.
Even after lower slab rates, majority of the taxpayers were filing ITR under the old tax regime. Hence, to make compliance easier and make it attractive for the taxpayers to opt for the new regime, the Finance Minister in Budget 2023 revised the tax slabs and rates under the new regime and announced it as the default tax regime for the taxpayers from FY 2023-24 onwards.
- New Tax Slab Rates u/s 115BAC as per Budget 2023
- Other Modifications in the New Regime as per Budget 2023
- Changes in Deductions and Exemptions under section 115BAC
- Set-off of Losses and Unabsorbed depreciation as per section 115BAC
- Opting for the new scheme
- Income Tax Slab and Rates under New Regime for FY 2022-23
- Switching between Old Tax Regime & New Tax Regime
New Tax Slab Rates u/s 115BAC as per Budget 2023
The below table shows the new income tax slabs and rates under the new regime for FY 2023-24/AY 2024-25 onwards:
|Tax Slab||Tax Rate|
|Up to INR 3,00,000||Nil|
|INR 3,00,001 – 6,00,000||5%|
|INR 6,00,001 – 9,00,000||10%|
|INR 9,00,001 – 12,00,000||15%|
|INR 12,00,001 – 15,00,000||20%|
|Above INR 15,00,000||30%|
Other Modifications in the New Regime as per Budget 2023
- The new regime will be the default tax regime. However, taxpayers can still opt for and file ITR under the old tax regime.
- Previously taxpayers had the option to opt for the New regime only up to the due date of ITR filing as per section 139(1), post that all returns were processed by default under the old tax regime which will now be processed under the new tax regime by default.
- The rebate u/s 87A is increased to INR 25,000 from INR 12,500. Hence, taxpayers having income up to INR 7,00,000 do not have to pay any tax.
- The introduction of the standard deduction of INR 50,000 for Salaried individuals, pensioners, and family pensioners.
- The highest rate of surcharge on income above INR 5 crore has been reduced to 25% from 37%. As a result, maximum marginal rate is reduced to 39% from 42.74%.
- Marginal tax relief has been introduced for taxpayers whose taxable income is between INR 7 lakhs – INR 7.5 lakhs after claiming eligible deductions. So that you only need to pay taxes for income slightly above INR 7 lakhs.
For example, if your total taxable income is INR 7,10,000, then the tax payable will be INR 1000 instead of INR 26,000.
Changes in Deductions and Exemptions under section 115BAC
According to the announcement made in the Budget 2020, there have been major removal of tax exemptions and deductions under the new tax regime. This has made tax compliance less tedious. Here’s a list of deductions that have been removed as per clause (i) of sub-section (2) of section 115BAC:
- Leave travel concession as per section 10(5);
- House rent allowance as per section 10(13A);
- Official and personal allowances (other than those as may be prescribed) as per section 10(14);
- Allowances to MPs/MLAs as per section 10(17);
- Allowance for income of minors as per section 10(32);
- Exemption for SEZ unit as per section 10AA;
- The standard deduction, the deduction for entertainment allowance and employment/professional tax as per section 16;
- Interest under section 24 in respect of self-occupied or vacant property as per section 23(2).
- Additional depreciation under clause (iia) of sub-section (1) of section 32;
- Deductions u/s 32AD, 33AB, 33ABA;
- Various deductions for donation or expenditure on the scientific research available in section 35;
- Deduction u/s 35AD or section 35CCC;
- Deduction from family pension under clause (iia) of section 57;
- Any deduction under chapter VIA (like section 80C, 80CCC, 80CCD, 80D, 80DD, 80DDB, 80E, 80EE, 80EEA, 80EEB, 80G, 80GG, 80GGA, 80GGC, 80IA, 80-IAB, 80-IAC, 80-IB, 80-IBA,etc). However, deduction under sub-section (2) of section 80CCD (employer contribution on account of the employee in notified pension scheme), 80CCH investment in agni veer fund, and section 80JJAA (for new employment) can be claimed.
Set-off of Losses and Unabsorbed depreciation as per section 115BAC
As per section 115BAC of income tax act, losses from house property can only be set off against other income from house property. Moreover, losses from income from house property cannot be carried forward in the new income tax regime.
In the case of a business income, an individual or HUF cannot claim set-off of the brought forward business loss or unabsorbed depreciation and also cannot carry forward the same to the extent they relate to deductions/exemptions withdrawn in clause (i) of sub-section (2) of section 115BAC.
Opting for the new scheme
As per the income tax laws, an individual having business income shall submit form 10-IE before the due date of filing ITR i.e. July 31 under non-audit cases and 31st October under audit applicable cases.
Income Tax Slab and Rates under New Regime for FY 2022-23
|Income Tax Slab||Tax Rate|
|Up to INR 2,50,000||Nil|
|INR 2,50,001 – 5,00,000||5%|
|INR 5,00,001 – 7,50,000||10%|
|INR 7,50,001 – 10,00,000||15%|
|INR 10,00,001 – 12,50,000||20%|
|INR 12,50,001 – 15,00,000||25%|
|Above INR 15,00,000||30%|
Switching between Old Tax Regime & New Tax Regime
- Business Income
- Individuals having business income are not eligible to choose between the new and old tax regimes every year. Once they have opted for the new tax regime, they only have a one-time option of switching back to the old tax regime in their lifetime. Once they switch back, they cannot opt for the new tax regime again.
- Essentially, people with business income may have to fill out Form 10-IE twice, once to use the new tax regime and the second to switch back to the old regime.
- Non-Business Income
- An individual having salaried income and no business income has the option to choose between the old and new tax regimes every year.
If an individual who has opted for the old tax regime with their employer for TDS on salary, plans to opt new tax regime when filing ITR, then they can do that by filling the form i.e.10IE.”
Standard deduction on salary u/s 16 is not available under the new tax regime up to FY 2022-23. From FY 2023-24 onwards salaried individuals can claim a deduction of INR 50,000.
Any taxpayer who wishes to pay income tax as per the new tax regime has to communicate to the Income Tax Department by filing form 10IE.
Yes, you can carry forward short-term and long-term capital losses in the new tax regime because only the losses that relate to deductions/exemptions withdrawn in clause (i) of sub-section (2) of section 115BAC of income tax act cannot be set off or carried forward.