New Income Tax Regime: What Taxpayers Should Know?

The Union Budget 2020 introduced a new income tax regime in the Income-tax Act, 1961 for individual taxpayers. Since then, it has remained unchanged until the Union Budget 2023 introduced several significant changes in the new tax regime. All taxpayers of every age group, including HUF, must be aware of the new income tax regime. 

The finance minister announced that taxpayers can choose between the old and new tax regimes until 31 March 2023, but from April 1, 2023, the new tax regime is proposed to be the default regime.  

As per the government, the new tax regime rules are supposed to simplify the tax structure. Further, the new regime offers lower tax rates, which makes it attractive for certain taxpayers; however, they are required to forego certain new tax deductions and exemptions to opt for the new regime. 

Therefore, it is crucial for taxpayers to assess their finances including income from all the sources and tax-saving investments to make the most of the appropriate tax regime and optimize their tax obligations. 

Let’s look at the new tax regime rates and other changes in it for the financial years 2022-23 and 2023-24. 

Budget 2023 proposed the new income tax regime as the default regime for FY 2023-24 and revised the new tax slabs for 2023. Also, note that the slabs in the new tax regime are the same for individuals and HUF of all age groups. 

The financial year 2022-23 has ended but taxpayers can file ITR until July 31, 2023. So, if you need to change your chosen tax regime while filing ITR or want to know the new tax slabs to calculate your tax, check out the table below. 

The Union Budget 2023 altered a few income tax deductions and exemptions in the new tax regime. Here is a list of all the new tax deductions available under the new income tax regime that are allowed and not allowed for both the financial years, i.e., 2022-23 and 2023-24. 

Go through these to determine your tax liability if you opt for the new tax regime. 

For financial year 2023-24, which started on April 1, 2023, Budget 2023 proposed some changes in the new tax rules, which are as follows: 

• The tax slabs in the new tax regime have been reduced to five; earlier, there were six.   

• Unlike the old tax regime, the new tax slab rates are the same for all the taxpayers, irrespective of their age, including HUF. 

• Budget 2023 hiked the basic tax exemption limit to ₹3 lakhs from ₹2.5 lakhs. 

• The rebate under Section 87A also increased to ₹7 lakhs from ₹5 lakhs, which implies that taxpayers can claim a rebate up to ₹ 25,000, which is double from the ₹12,500 in the previous financial year. 

• The benefit of standard deduction of ₹50,000 for salaried people and pensioners has now been extended to the new tax regime as well. For family pensioners, the standard deduction of ₹15,000 is allowed for family pensioners. 

Reducing tax liability while simultaneously achieving their financial goals is the main aim of every taxpayer as soon as the new fiscal year begins.  

Since the new FY 2023-24 has already revived most of the new tax regime deductions and benefits, the scope of tax saving under the new tax regime becomes more limited than the old one. So, to save tax under the new regime: 

• Invest in Tax-Efficient Options: Investing in options that offer tax-saving benefits along with low-risk returns should be every taxpayer’s priority. Check which instruments are available under the new regime and which are not before you start investing. 

• Claim all the Deductions Possible: You can significantly lower your taxable income by utilising all the relevant tax deductions allowed under the new tax regime, such as for home loans, health insurance premiums, etc.