Income Tax Changes From 1st April 2024 | New Income Tax Rules 2024

With the start of the new fiscal year (FY 2024-25), there will be some noteworthy changes. These changes will be implemented from April 1, 2024. The corresponding changes from April 1, 2024, will add new regulations or reforms to the prevailing ones. India’s Finance Minister, Smt. Nirmala Sitharaman has presented several new income tax rule changes in the budget 2024. In this article, we have detailed the significant changes that will take effect following the recent budget announcement.

Modifications in the Income Tax Slabs

According to the announcement made under the latest budget, the revised tax slab applies to the new tax regime. The corresponding changes from April 1, 2024, are highlighted below.

Additional Benefits to Taxpayers Opting for New Regime

• The standard deduction limit under the head salary has been increased from Rs. 50,000 to Rs. 75,000. 
• The limit for deduction of family pension has also been increased from Rs. 15,000 to Rs. 25,000.
• Deduction on employer's contribution u/s 80CCD(2) has been increased from 10% to 14% of salary and dearness allowance.

Advantages of the Implementation of New Tax Regime

The following are the advantages of the new tax regime to taxpayers:

• With the introduction of the new tax regime, taxpayers need not maintain a track record of travel tickets and rent receipts.
• The income tax rule changes from April 1, 2024 make sure taxpayers can get rid of complex tax planning as these changes aim to simplify tax planning.
• With the introduction of the new income tax regime, the basic exemption limit has been elevated from Rs.2.5 lakhs to Rs.3 lakhs. This increased exemption limit makes the novel tax regime more appealing. Note that the highest tax rate, i.e., 30%, will be imposed on income exceeding Rs.15 lakhs. 

Changes in the Surcharge Rate

• The implementation of the new tax regime leads to a reduction in the surcharge rate from 37% to 25%. This is applicable for individuals with income exceeding Rs.5 Crores.
• This reduced surcharge rate is valid only for those taxpayers who choose the new tax regime and have an income exceeding Rs.5 Crores.

The following table shows the updated surcharge rate according to the new tax regime:

Change in the Rebate Limit

The introduction of the new tax regime has increased the rebate limit. As per the old tax regime, the applicable rebate limit is Rs.12,500 for incomes up to Rs.5 lakhs. However, under the new tax regime, this rebate limit has increased to Rs.25,000 if the taxable income is less than or equal to Rs.7 lakhs. Note that the Section 87A rebate is applicable under both income tax regimes. Then, the budget announcement increased the taxable limit to Rs.7 lakhs from Rs.5 lakhs under the new tax regime.

Standard Deduction

Salaried individuals' standard deduction under the old regime is Rs.50,000, whereas in the case of the new regime, the limit has been increased to Rs. 75,000 for the FY 2024-25.

Other Deductions Newly Added under the New Regime

• Deduction from family pension income of  Rs.15,000 or 1/3rd of the pension (whichever is lower). This has been increased to lower of 1/3rd or Rs. 25,000 as per the July 2024 Budget.
• Deduction of the amount paid or deposited in the Agniveer Corpus Fund under Section 80CCH(2).

Why No Income Tax Applies for Income up to Rs. 7 lakhs

• When calculating taxes, the income tax will be first calculated according to the slab rates. Subsequently, the rebate will be deducted from the final tax amount, ultimately lowering it down to zero.
• In Budget 2023, under the new tax regime, a tax rebate was introduced on an income less than or equal to Rs. 7 lakhs. It implies that taxpayers who choose the new tax regime don’t have to pay tax if their income doesn’t exceed Rs. 7 lakhs. Hence, it is said that no income tax applies to income up to Rs. 7 lakhs.
• The standard deduction of Rs. 50,000 (for salaried individuals) is also applicable under the new tax regime. So, a taxpayer(receiving salary) with income less than or equal to Rs. 7.5 lakhs don’t have to pay tax if they opt for the new tax regime.

Exemption on Leave Encashment

Under the new tax regime, you will obtain an exemption on leave encashment. In the budget 2023, the exemption limit for leave encashment was raised 8 times i.e. from Rs. 3 lakhs to Rs. 25 lakhs for non-government employees. So, at retirement, the leave encashment amounting up to Rs. 25 lakhs is free from tax, as per Section 10(10AA). 

Switching Back to the Old Tax Regime

• From the financial year 2023-24, the new income tax regime will be valid as the default tax regime.
• If you plan to switch back to the old tax regime, submitting a form (Form 10-IEA) is vital while filing the tax return.
• The frequency of switching between old and new tax regimes depends on the type of your income. If it's professional or business income, you can switch between old and new tax regimes only once during the lifetime. But if the income type is other than professional/business income, you can switch between the old and new tax regimes yearly.

Life Insurance Policies

• According to the Budget 2023 announcement, from April 1, 2023, the earnings from life insurance policies with a yearly premium of over Rs. 5 lakhs will be taxable to the policyholder. Note that the corresponding income tax rule changes will not apply to Unit Linked Insurance Plans (ULIPs).
• The amount obtained from a life insurance policy is tax-deductible until the premiums remunerated on the policy does not surpass 10% of the sum assured.
• But, there were circumstances in which taxpayers misused this exemption by investing in policies with high premium offerings and asking for higher tax exemptions. So, under the new tax regime, the amount obtained from life insurance policies will be taxable if the yearly premium remunerated surpasses Rs. 5 lakhs in a year.

Changes in Taxation on Capital Gains

Budget 2024 has made significant changes on the tax implications on the capital gains which are as under:

• Holding period for determining long-term and short-term has been simplified for all listed securities - a period of 12 months is to be considered, and for other assets period of 24 months should be considered for determining whether the asset is a long-term capital asset or not.
• Further, no indexation will be available for sale made from 23rd July, 2024 for any long term capital asset.
• LTCG Tax Rate u/s 112A and 112 have been changed to 12.5% from 23rd July, 2024. 
• STCG Tax Rate u/s 111A has been increased to 20% from 23rd July, 2024.
• Further, exemption limit u/s 112A has been increased from Rs. 1 lakh to Rs. 1.25 lakhs.
• Buyback Tax has been revamped wherein from 1st October, 2024 buybacks will be taxable in the hands of the receipient as deemed dividneds.

Changes in the Presumptive Taxation

The presumptive scheme of taxation is a simplified method provided by tax authorities to compute taxable income for certain eligible businesses or professions. Under this scheme, taxpayers are allowed to declare income at a prescribed rate based on certain presumptions rather than maintaining detailed books of accounts and undergoing complex calculations. The presumptive tax scheme works identically in both the old and new tax regimes.

The increase in limits is subject to a condition that 95% of the receipts must be through online modes.

Related Articles:
1. New Tax Regime 2024: All Your Questions Answered
2. Ways to Save Income Tax On New Tax Regime for FY 2023-24
3. Will the old tax regime be discontinued?