What You Need to Know About Key Income Tax Changes Effective April 1?

As we embark on a new financial year starting April 1, 2024, familiarizing yourself with the revised income tax regulations is crucial. These changes, implemented as per the last Union Budget presented by Finance Minister Nirmala Sitharaman, affect various aspects of taxation, including basic exemption limits, tax slabs, and deductions.

This guide provides a comprehensive breakdown to help you navigate the new landscape.

New Tax Regime as Default Option

A significant shift taking effect in April is the automatic adoption of the new tax regime. This simplifies the filing process by offering streamlined forms and reduced tax rates. However, taxpayers still retain the flexibility to opt for the old tax regime if it provides a greater tax benefit in their specific case.

Adhil Shetty, CEO of Bankbazaar.com, emphasizes the importance of understanding the transition process between the old and new tax regimes. Consulting a tax advisor can be helpful, especially if your income profile is complex.

Switching Between Tax Regimes

The process for switching between regimes varies based on your income source:

• Professional or Business Income: You can only switch between regimes once in your lifetime.

• Other Income Sources: If your income falls outside the professional/business category, you have the flexibility to switch regimes annually.

Increased Basic Exemption Limit and Rebate

Effective April 1, 2023, the basic exemption limit under the new tax regime has been raised to Rs 3 lakh from Rs 2.5 lakh. This translates to a higher income threshold before tax liability kicks in. Additionally, the rebate under Section 87A of the Income Tax Act, 1961, has been increased to Rs 7 lakh from Rs 5 lakh. This effectively eliminates tax liability for individuals with a taxable income of up to Rs 7 lakh under the new regime.

New Tax Slabs for the New Tax Regime

The revised tax slabs under the new tax regime categorize income based on brackets and apply varying tax rates:

• Income between ₹3 lakh and ₹6 lakh: Taxed at 5%

• Income between ₹6 lakh and ₹9 lakh: Taxed at 10%

• Income between ₹9 lakh and ₹12 lakh: Taxed at 15%

• Income between ₹12 lakh and ₹15 lakh: Taxed at 20%

• Income above ₹15 lakh: Taxed at 30%

Restoration of Standard Deduction

A key benefit for taxpayers under the new regime is the restoration of the standard deduction of Rs 50,000. This deduction, previously exclusive to the old tax regime, now applies to both, effectively reducing taxable income under the new system.

The highest surcharge rate on income exceeding Rs 5 crore has been reduced to 25%. This translates to a lower effective tax rate for high-income individuals opting for the new regime.

Life Insurance Taxation

Maturity proceeds from life insurance policies issued where the total premium exceeds Rs 5 lakh will be subject to taxation, effective April 1, 2023. It's essential to consider this when reviewing your existing life insurance policies.

Increased Leave Encashment Exemption Limit for Non-Government Employees

Non-government employees will enjoy an increased tax exemption limit for leave encashment upon retirement. The limit has been raised to a generous Rs 25 lakh from Rs 3 lakh.

Conclusion

These income tax changes mark a new chapter in personal finance management. Staying informed about these alterations is vital to optimizing your financial planning and tax strategies in the upcoming financial year. Consider consulting a tax advisor for personalized guidance based on your specific circumstances.