India’s income tax rules have undergone several revisions since the introduction of income tax in 1860. The Income Tax Act of 1961 is the current law governing income taxation in India. The rules are regularly updated to reflect economic changes, tax administration, and government policies.
New Income Tax Rules in Budget 2023
The new income tax slabs and rules introduced in Union Budget 2023 will impact individual taxpayers significantly. With updated tax rates, rebates, and exemptions, the changes aim to reduce the tax burden on low and middle-income earners.
Taxpayers can choose between the new and old regimes to optimize their tax payments. Understanding these changes is critical so taxpayers can make informed decisions and stay up-to-date with the latest tax regulations.
As taxpayers navigate these changes, it is essential to remember that the significant increase in tax collection over the past 12 years is a testament to India’s evolving tax system and the need to stay updated with the latest regulations to make the most of the available opportunities.
According to data from the Ministry of Finance, India’s tax collection has grown by a remarkable 303% over the last 12 years. Between FY10 and FY22, the tax collection grew from Rs 6.36 lakh crore to Rs 21.33 lakh crore, marking a significant increase of 235%.
What are the Income Tax Slabs?
The income tax slabs refer to the specific income levels at which different tax rates apply to individual taxpayers in India. Introducing a slab system ensures a fair tax system, where higher-income individuals must pay more tax. The income tax slab rates vary based on several factors, including the taxpayer’s age, income level, and other considerations. The slab rates tend to change yearly during the budget announcement, and taxpayers must stay updated on the latest changes to ensure they’re paying the correct amount of tax.
New Regime Income Tax Slab Rates – Individuals
As per budget 23, the tables below display the new income tax slabs:
|Income Tax Slab||Income Tax Rate|
|Up to Rs.3 lakh||Nil|
|Above Rs.3 lakh – Rs.6 lakh||5% of the total income|
|Above Rs.6 lakh – Rs.9 lakh||10% of the total income|
|Above Rs.9 lakh – Rs.12 lakh||15% of the total income|
|Above Rs.12 lakh – Rs.15 lakh||20% of the total income|
|Above Rs.15 lakh||30% of the total income|
Note: A income tax rebate is available to those earning up to Rs 7 lakh per year. Under the new tax regime, the highest surcharge rate on income beyond INR 5 crore would drop from 37% to 25%.
Factors to Keep in Mind before Opting for the New Tax Regime
It is important to note that the tax rates for all categories of individuals, including those aged up to 60 years, senior citizens aged 60 to 80, and super senior citizens over 80, are the same in the new tax regime. It means that senior and super-senior citizens will not receive any additional benefit from the increased basic exemption limit in the new tax regime.
The option is available for individuals and members of a Hindu Undivided Family (HUF) without any business income and must be exercised on or before the previous year’s deadline. Please note that the new income tax rates are not mandatory and can be opted for voluntarily.
Once you choose the new tax regime, you cannot switch back to the old regime during the same financial year. However, you can switch back to the new regime the following year if you previously withdrew your option.
While the new tax regime offers lower income tax slabs rates, taxpayers should evaluate the benefits and drawbacks of both regimes. Some factors are the availability of deductions and exemptions, the taxpayer’s income level, and future income expectations.
Old Income Tax Regime vs New Income Tax Regime
As an Indian taxpayer, you can choose between the old and new income tax regimes for FY 2023-24. However, it’s essential to understand the differences between the two regimes before deciding. The new tax regime offers more income tax slabs with lower rates but doesn’t provide many exemptions or deduction choices.
On the other hand, the previous tax regime allowed up to 70 deductions or exclusions to decrease your taxable income and income tax liability based on income tax slabs. Therefore, evaluating your financial situation and investment portfolio before opting for the new tax regime is crucial to ensure you make an informed decision.
Let’s take the case of Mr Arun, who earns Rs 12 lakh each year. The HRA deduction is Rs 35,000 per year. He makes use of the Section 80C limit of Rs. 1.5 lakh by combining EPF and ELSS mutual funds. He also bought health insurance for Rs 15,000 (self and spouse) and Rs 30,000 (senior citizen – parents), which he claims as a tax deduction under Section 80D. He also put an extra Rs 20,000 into NPS to save even more taxes on his earnings.
|Items||Old Tax Regime (Rs.)||New Tax Regime (Rs.)|
|Less: Standard Deduction||50,000||50,000|
|Less: Section 80C (EPF +LIC+ Tuition Fees, etc)||1,50,000||NA|
|Less: House Rent Allowance||35,000||NA|
|Less: Health Insurance- self and spouse- parents (if senior citizen)||45,000||NA|
|Less: New Pension Scheme 80CCD (1B)||20,000||NA|
|Total (Deduction & Exemption)||3,00,000||NA|
|Net Taxable Income (Annual Income – Total deductions & exemptions)||9,00,000||11,50,000|
Total Tax Payable as per New Income Tax Slabs in the Old Regime
|Income Tax Slabs (Rs.)||Old Tax Rates||Tax(Old) (Rs.)|
|0 – 2,50,000||0%||0|
|2,50,000 – 5,00,000||5%||12,500|
|5,00,000 – 7,50,000||20%||50,000|
|7,50,000 – 10,00,000||20%||50,000|
|10,00,000 – 12,50,000||30%||75,000|
|12,50,000 – 15,00,000||30%||0|
|15,00,000 & above||30%||0|
|Add: Higher Education Cess @4%||7,500|
|Total tax payable||1,95,000|
Total Tax Payable as per New Tax Slabs in the New Regime (FY 23-24)
|Income Tax Slabs (Rs.)||New Tax Rates||Tax(New)(Rs.)|
|0 – 3,00,000||0%||0|
|3,00,000 – 6,00,000||5%||15,000|
|6,00,000 – 9,00,000||10%||30,000|
|9,00,000 – 12,00,000||15%||45,000|
|12,00,000 – 15,00,000||20%||60,000|
|Add: Higher Education Cess @4%||6,000|
|Total tax payable||1,56,000|
Hence, as you can see from the tables above, Mr Arun may prefer the new tax structure.
Taxpayers should evaluate their options before switching to the new regime. Considering the factors above, taxpayers can decide which income tax regime to choose for budget 2023.
Which individuals are eligible to claim the income tax rebate under Section 87A?
The tax rebate under Section 87A is available for all resident Indians whose total annual income is Rs.7 lakh under the new tax regime.
Can the Income Tax regime be changed for filing tax returns?
Yes, you can choose either the old or new regime according to your preference while filing your income tax returns.
Do I need to file an Income Tax Return if my annual income is below
Rs. 2.5 lakhs?
If your yearly income is below Rs. 2.5 lakh, filing an ITR is not mandatory. However, you should file a ‘Nil Return’ for the record, which can serve as proof of employment in various situations.