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.

New Income Tax Regime for FY 2023-24 (AY 2024-25)

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.

Revised Income Tax Slabs Under New Tax Regime - FY 2023-24

Check out the new tax regime rates below, effective April 1, 2023.

Income Tax Slabs	Rate of Taxation
Up to ₹3,00,000	Nil
Between ₹3,00,001 and ₹6,00,000	5% of your total income that exceeds ₹3,00,000
Between ₹6,00,001 and ₹9,00,000	₹15,000 + 10% of your total income that exceeds ₹6,00,000
Between ₹9,00,001 and ₹12,00,000	₹45,000 + 15% of your total income that exceed ₹9,00,000
Between ₹12,00,001 and ₹15,00,000	₹90,000 + 20% of your total income that exceeds ₹12,00,000
More Than ₹15,00,000	₹1,50,000 + 30% of your total income that exceeds ₹15,00,000

Taxpayers will also have to pay an additional 4% Health and Education cess in addition to the tax amount calculated above.

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New Income Tax Regime for FY 2022-23 (AY 2023-24)

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.

Income Tax Slabs Under New Tax Regime - FY 2022-23

Check out the new tax regime rates below, valid until March 31, 2023.

Income Tax Slabs	Rate of Taxation
Up to ₹2,50,000	Nil
Between ₹2,50,000 and ₹5,00,000	5% of your total income that exceeds ₹3,00,000
Between ₹5,00,000 and ₹7,00,000	₹12,500 + 10% of your total income that exceeds ₹5,00,000
Between ₹7,50,000 and ₹10,00,000	₹37,500 + 15% of your total income that exceeds ₹7,50,000
Between ₹10,00,000 and ₹12,50,000	₹75,000 + 20% of your total income that exceeds ₹10,00,000
Between ₹12,50,000 and ₹15,00,000	₹1,25,000 + 25% of your total income that exceeds ₹12,50,000
Above ₹15,00,000	₹1,87,500 + 30% of your total income that exceeds ₹15,00,000

An additional 4% Health and Education cess is also levied on top of the tax amount calculated above.

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Tax Deductions and Exemptions Under New Tax Regime

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.

New Tax Deductions Allowed Under New Tax Regime

Category	Tax Deductions and Exemptions ALLOWED
Standard Deduction	Standard deduction of ₹50,000. Standard deduction of ₹15,000 for family pensioners or 1/3 of the family pension, whichever is less.
NPS	The benefit of any NPS contribution by the employer to an employee's NPS account up to 10%of salary for a private sector employee and 14% for a government employee. The lump-sum maturity amount received from the NPS account.
Section 80JJAA	Up to 30% of additional employee cost can be deducted.
Agniveer Corpus Fund	Any contribution made to the Agniveer Corpus Fund.
Home Loan	The interest component of a home loan borrowed for a rented property.
PPF and EPF	Tax deduction on employers' contributions to their employee's NPS and EPF and superannuation accounts. Taxpayers receiving interest from their EPF accounts for up to 9.5%. Interest or maturity amount from PPF.
Savings Schemes	Interest received from Post Office Savings Account. Maturity amount from life insurance policy. Interests and maturity amounts received from the Sukanya Samriddhi Account.
Allowances	Travel allowances to disabled employees, conveyance, travel, and daily allowances. Up to ₹20 lakh exemption on gratuity for non-government employees and exemption on entire gratuity for government employees. Gifts received from employers up to ₹5,000.
Retirement	The leave encashment during retirement, monetary benefits received from employers for voluntary retirement up to ₹ 5 lakhs.
Other	Education scholarships, retrenchment compensation, and monetary benefits for retirement cum death.

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New Tax Deductions Not Allowed Under New Tax Regime

As per the rules for the new tax regime, taxpayers opting for this income tax regime will have to forego up to 70 exemptions and deductions from the new tax regime in order to avail of the benefits of the lowered new tax slab rates.

Some of the common new tax deductions that taxpayers cannot claim are:

Category	Tax Deductions and Exemptions NOT ALLOWED
Salary Deductions	HRA, LTA, professional tax of ₹2,500, professional tax and entertainment allowance (applicable for government employees).
Section 80C	Investments made in Employees’ Provident Fund, life insurance premium and Public Provident Fund.
Home Loans	Interest and principal amount of housing loans up to ₹1.5 lakhs. Interest payment of home loan for self-occupied/ vacant property under Section 24(b). Interest payment up to ₹2 lakhs for purchase/construction/ repair/reconstruction of house property under section 24(b).
Section 80E	Interest paid on the student loan debt under Section 80E can no more be claimed for tax relief.
Section 80G	Donations or expenses in scientific research, National Defense Fund, Prime Minister’s National Relief Fund, The National Foundation for Communal Harmony, National/State Blood Transfusion Council.
Savings Account	Interest received from Savings Account under Section 80TTA and 80TTB. Special allowances under Section 10(14). Business professionals and owners in the Special Economic Zone cannot claim tax exemption under Section 10AA.
Other	Tax deduction under Section 35(1)(ii), 35(2AA), 32AD, 32(ii) (a), 33AB, 35(1)(iii), 33ABA, 35(1)(ii), 35CCC(a), and 35AD of the IT Act. Deductions as specified under Chapter VI-A such as 80IA, 80CCC, 80C, 80CCD, 80D, 80CCG, 80DDB, 80EE, 80E, 80EEA, 80DD, 80EEB, 80GG, 80IB, 80IAC, and 80IAB. Minor child, helper allowances and allowances for children's education.

Know more about:

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What are the Changes in the Revised New Tax Regime - FY 2023-24?

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.

How to Save Tax Under New Tax Regime in FY 2023-24?

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.

FAQs about New Income Tax Regime

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Which is better for salaried taxpayers: the new tax regime or the old regime?

For salaried employees, the new tax slabs 2023 are better for you if you have invested less than ₹3 lakhs in tax saving schemes; if you have invested more than ₹3 lakhs then go for the old tax regime. Additionally, it also depends on your salary.

What is the advantage of the new tax regime?

As per the rules for the new tax regime, taxpayers get a standard deduction of ₹50,000, have zero tax liability if their income is up to ₹7 lakhs, and can enjoy basic exemption limit up to an income of ₹3 lakhs.

What is the disadvantage of the new tax regime?

The tax rate under the new tax regime might be low but it does not offer the benefits of claiming almost 70 tax exemptions and deductions that are available under the old regime.

Can I claim tax deductions under Section 80C for the new tax regime?

No, if you choose the new tax regime you are not eligible to claim tax benefits under section 80C; however, they are available for old tax regime.

Do senior citizens have any specific tax benefits or exemptions under the new income tax regime in India?

Yes, senior citizens and super senior citizens continue to enjoy reduced tax rates as other taxpayers, along with higher basic exemption limits and other deductions.

Can I switch to the old tax regime in future fiscal years if I choose the new tax regime this year?

Yes, individual taxpayers can switch to the old tax regime in the next financial year provided they do not have business income.

Who is not allowed to switch between the two regimes?

Individual taxpayers having business income are not allowed to switch between the two tax regimes every year.

What happens if I do not specify any tax regime at the beginning of the year?

If an individual taxpayer does not specify their preferred regime, their taxes will be deducted based on the new tax regime as it is proposed to be the default regime for FY 2023-24. However, they can switch to their desired regime at the time of filing the income tax return.

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