Know 13 New Changes In Tax Slab 2023 That Will Impact You In 2024

The Central Board of Direct Taxes (CBDT) made some significant changes in income tax laws in the Budget session 2023 and during the financial year. Despite being announced in 2023, these changes will affect you when you file your income tax return (ITR) in July 2024 and the subsequent financial years while paying income tax.

Here is a list of important changes done by the CBDT in income tax and how they will affect you in the coming year:

1. New tax regime income tax slabs changed:

The income tax slabs were revised under the new tax regime to ease the taxpayers.
The taxpayers have to pay the Income tax according to these tax slabs for FY2023-24: From 0 to 3,000,00 (0%), 3,000,01 to 6,000,00 (5%), 6,000,01 to 9,000,00 (10%), 9,000,01 to 12,000,00 (15%), 12,00,001-15,00,000 (20%) and above 30,000,00 (30%).

The alterations in the income tax slabs within the new tax regime have enhanced its appeal over the old tax system. These changes will particularly benefit individuals who couldn't allocate funds for tax-saving investments and expenses in the previous tax structure. Such individuals often found themselves paying higher taxes before the introduction of the new tax regime.

2. Hike in basic exemption limit under new tax regime:

The new tax regime increased the basic exemption limit from Rs 2.5 lakh to Rs 3 lakh, marking a raise of Rs 50,000.

If you choose the new tax regime for FY 2023-24, filing an income tax return will not be obligatory if your gross taxable income stays below Rs 3 lakh in a financial year. The increased basic exemption limit will also facilitate savings of up to Rs 15,000 (30% of Rs 50,000) for individuals intending to opt for the new tax regime in FY 2023-24 (AY 2024-25) when filing their ITR. In contrast, the basic exemption limit in the old tax regime remains at Rs 2.5 lakh. Hence, an individual with gross taxable income ranging from Rs 2.5 lakh to Rs 3 lakh is likely to experience greater benefits with the new tax regime.

3. New tax regime becomes default tax regime:

Starting April 1, 2023, the new tax regime was established as the default tax system. Consequently, if an individual doesn't designate the tax regime for TDS from salary or during the income tax return filing process, the income tax liability will be computed based on the income tax slabs of the new tax regime.

During the filing of the income tax return for FY 2023-24 around June/July 2024, it will be necessary for you to expressly select the old tax regime if you prefer not to file ITR under the new tax system. Under the new tax regime, individuals are unable to avail themselves of common tax deductions and exemptions, including those for HRA and under sections 80C, 80D, etc.

4. Income tax rebate hiked in new tax regime:

An adjustment in the new tax regime involves an increase in the rebate amount provided under section 87A. The rebate amount has been raised by Rs 12,500, now standing at Rs 25,000 compared to the earlier amount of Rs 12,500. Consequently, an individual who chooses the new tax regime and possesses a taxable income of Rs 7 lakh will qualify for the rebate under section 87A.

Under the new tax regime, an individual with a taxable income of up to Rs 7 lakh opting for it will not have any tax liability at the time of filing their ITR. Previously, the rebate under section 87A was applicable for taxable incomes up to Rs 5 lakh in the new tax regime. Consequently, when filing the FY2023-24 (AY 2024-25) ITR in 2024 and selecting the new tax regime with a taxable income not surpassing Rs 7 lakh, no taxes will be due.

5. Standard deduction of Rs 50,000 in new tax regime:

Choosing the new tax regime will grant individuals a standard deduction of Rs 50,000 starting from FY 2023-24 (AY 2024-25). This particular deduction of Rs 50,000 is applicable to salary and/or pension income. Previously, this deduction was solely accessible to individuals who opted for the old tax regime.

Under the new tax regime for salaried individuals, two deductions will be available: the standard deduction and the deduction under section 80CCD (2) related to the Employer's contribution to the National Pension System (NPS). With the advantage of the standard deduction, an individual having taxable income of up to Rs 7.5 lakh will not owe any tax.

As per the Budget 2023 announcement, each salaried individual earning Rs 15.5 lakh or more will consequently gain a benefit of Rs 52,500 under the new tax regime.

6. No LTCG benefit in debt mutual funds:

Post March 31, 2023, investments in debt mutual funds will no longer enjoy the benefit of Long Term Capital Gains (LTCG) taxation upon withdrawal. Consequently, the capital gains derived from debt mutual fund units held for 3 years or more will cease to be eligible for taxation as LTCG with indexation.

Following investments in debt mutual funds post-March 31, 2023, all capital gains, whether short-term or long-term, will be taxed similarly to the interest earned from fixed deposits. Consequently, the income tax rate on these gains will be applied according to your income slabs. Previously, debt mutual funds held an advantage over bank fixed deposits due to the LTCG tax benefit offered on their capital gains.

7. Marginal tax relief for small taxpayers:

Under the new tax regime, a marginal tax relief has been implemented for individuals with a slight increase in taxable income, slightly surpassing Rs 7 lakh in a financial year. Previously, this relief was solely accessible to taxpayers with taxable income exceeding Rs 50 lakh. This relief aims to assist individuals facing higher tax liability due to a marginal rise in their income.

Under the new regulation, if an individual chooses the new tax regime during ITR filing, and the tax imposed on income surpassing Rs 7 lakh exceeds the amount by which the income exceeds Rs 7 lakh, the individual can claim marginal relief in such instances.