The new financial year brings with it implementation of the changes in the Income Tax regime, that were first introduced by
Nirmala Sitharaman
in the Union Budget of 2023. And tax planning is not an exercise to be conducted only on the last 5 days of the financial year but a continuous process from day 1 i.e. 1st April, we note down all the changes you must take note of to begin the process.
- New income tax regime and slabs is the default regime: The new tax regime was introduced in the Budget 2021. If taxpayers did not avail certain deductions and exemptions from their taxable income like PPF, house rent allowance, they would be taxed at a lower rate. This new regime is now the default option. Unless you specifically chose the old regime wherein you're allowed to enjoy these deductions and exemptions from your total income but be taxed at a higher rate.
- New regime made more attractive: Earlier individuals reporting taxable income of Rs. 5 lac get full rebate on the tax. This has been raised to Rs. 7 lac. While no other deductions and exemptions are allowed under the new regime, a Rs. 50,000 standard deduction from total income is. Hence, if you are earning under Rs. 7.5 lac, you should opt for the new regime.
- More positives for the new tax regime: The exemption limit raised! The new tax slabs now allow for 0 tax on income up to Rs. 3 lk. This was earlier Rs. 2.5 lk. And the slabs which earlier had a difference of Rs. 2.5 lk will now have a range of Rs. 3 lk.
- Leave travel allowance exemption limit, which has been Rs. 3 lk since 2002 has been extended to Rs. 25 lk
- Super rich surcharge will be lower: The surcharge rate (which is an extra charge as a % of the tax) for those earning more than Rs. 5 cr has been capped at 25%. So everyone earning more than Rs. 2 cr will have to pay tax at 25%. This brings down the maximum marginal tax rate for an individual earning more than??5 crores to 39% (i.e. 30% tax rate + 25% surcharge + 4% cess) from the existing 42.744%
- Removal of some tax advantages: Not all good news. Debt Mutual funds held for more than 3 years enjoyed the status of long term capital gains. They enjoyed indexation benefits wherein the cost was increased to adjust for inflation, while calculating gains, thus lowering the taxable figure. This was then taxed at a flat rate of 20%. Now the indexation benefit is gone which means the taxable gains will be higher, and the gains will be taxed as per the individual's tax bracket. Not just that, insurance policies with premium exceeding Rs. lk annually, will now be taxed at the time of withdrawal of the proceeds
- Benefits to senior citizens: The maximum amount that can be deposited in the senior citizen savings scheme will be increased to Rs. 30 lk from Rs. 15 lk Also, the maximum deposit limit for monthly income scheme will be increased to. Rs 9 lk from 4.5 lk for single accounts and Rs. 15 lk from Rs. 7.5 lk for joint accounts.
