New Tax Regime

Context: Recently, during the Union Budget 2023-24 speech, Finance Minister announced new tax slabs and scrapped the old twin-structure system that was unboxed in 2020.

Major Changes Announced in the New Tax Regime

Tax Rebate Limit Raised to ₹7 lakh from ₹5 lakh

• Meaning: It means that the person whose income is less than ₹7 lakhs need not invest anything to claim exemptions and the entire income would be tax-free irrespective of the quantum of investment made by such an individual.
• Impact: This will result in giving more consumption power to the middle-class income group as they could spend the entire amount of income without bothering too much about investment schemes to take the benefit of exemptions.

Changes in Income Tax slabs

• Number of tax slabs has been reduced to five and the tax exemption limit has been increased to ₹3 lakh.
• The move is aimed at incentivizing people to shift to the new tax regime, which has not seen much traction since launch in FY21.
• Tax assessors will still be able to choose from the prior regime.

For Pensioners

• The finance minister announced extending the benefit of the standard deduction to the new tax regime.
• Each salaried person with an income of ₹15.5 lakh or more will benefit by ₹52,500.

Maximum tax, along with surcharge, will be 39%

• It was proposed to reduce the highest surcharge rate from 37% to 25% in the new tax regime. This would result in the reduction of the maximum tax rate to 39%.
  • The highest tax rate in India is 42.74%. This is among the highest in the world.
• Tax rates have been reduced under the new tax regime and the maximum marginal rate drops from 42.74% to 39%.

New Tax Regime as the Default Option

• From FY 2023-24, the new tax regime will be the default option.
• Every fiscal year, an individual or Hindu Undivided Family (HUF) must select between the old and new tax regimes. If they do not have any business income, this is applicable.
• Individual taxpayers and HUFs with business income are eligible to choose the new income tax regime.
• However, once they have opted in, they will only have a once-in-a-lifetime opportunity to return to the old tax structure. They cannot choose the new income tax regime in future fiscal years once they have chosen the old one.

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