Income Tax Changes From 1st April 2024: Income Tax Rules for FY 2024-25

With the commencement of the new fiscal year (FY 2024-25), there were some noticeable changes. These changes were implemented on April 1, 2024. The relevant amendments, which took effect on April 1, 2024, supplemented the current regulations with new ones. In the Budget 2024, Smt. Nirmala Sitharaman, India's finance minister, proposed a number of new reforms to the income tax code. The major adjustments that will be implemented in the wake of the current budget announcement are described in depth in this article.

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Table of Contents

• Income Tax Slabs to be Applicable for FY 2024-25 (AY 2025-26)

• New Tax Regime Benefits

• Updates in Rebate Limit

• Updates in Surcharge Rate

• Exemption on Leave Encashment

• No Income Tax on Income up to Rs. 7 Lakh

• Update in Taxes on Capital Gains

• Updates in Presumptive Taxation

• Life Insurance Policies Tax Treatment

• Transitioning to the Old Tax Regime

• Conclusion

• Frequently Asked Questions

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Income Tax Slabs to be Applicable for FY 2024-25 (AY 2025-26)

The updated tax slab is applicable to the new tax regime, per the statement made under the most recent budget. The following highlights the equivalent modifications as of April 1, 2024.

Total Income	Tax rate
Rs. 0 to Rs. 3,00,000	0%
Rs. 3,00,001 to Rs. 7,00,000	5%
Rs. 7,00,001 to Rs. 10,00,000	10%
Rs. 10,00,001 to Rs. 12,00,000	15%
Rs. 12,00,001 to Rs. 15,00,000	20%
Above Rs. 15,00,000	30%

New Tax Regime Benefits

Taxpayers opting for the New Tax Regime will get some additional benefits. These include: 

• Standard Deduction: As per the old regime, salaried individuals were entitled to the standard deduction of Rs. 50,000. Under the new regime, however, the maximum has been hiked to Rs. 75,000 for FY 2024–2025. 

  
  

• A deduction of Rs. 15,000 or one-third of the pension, whichever is less, from the family pension income. The July 2024 Budget increased it to one-third or Rs. 25,000, whichever is lower.

  
  

• An increase in the deduction on employer's contribution under Section 80CCD(2) from 10% to 14% of salary and dearness allowance (DA).

  
  

• Deduction of the sum paid or placed in the Agniveer Corpus Fund under Section 80CCH(2). 

Since the implementation of the new tax system, taxpayers are no longer required to keep a record of their rental receipts and trip tickets. In an effort to simplify tax planning, the income tax law amendments enacted on April 1, 2024, ensure that taxpayers can do away with intricate tax planning. The basic exemption threshold witnessed an increase from Rs. 2.5 lakhs to a higher limit of Rs. 3 lakhs with the implementation of the new income tax regime. The new tax regime is more attractive because of its higher exemption level. 

Updates in Rebate Limit

The refund ceiling has gone up since the new tax regime was implemented. The appropriate refund limit as per the old tax regime was Rs. 12,500 for people with incomes up to Rs. 5 lakhs. However, if the taxable income is under Rs. 7 lakhs, the rebate limit has been raised to Rs. 25,000 under the new tax regime. Both income tax systems follow the Section 87A rebate.

Updates in Surcharge Rate

The surcharge rate was lowered from 37% to 25% with the advent of the new tax regime. This is relevant to people who earn more than Rs. 5 crores. Only taxpayers who opt for the new tax regime and earn more than Rs. 5 crores are eligible for this lower surcharge rate. The modified surcharge rate under the new tax regime is displayed in the following table:

Taxable Income Limit	Surcharge Rate on Income Tax
	Before Budget 2023	After Budget 2023
Less than Rs. 50 lakhs	0%	0%
Rs. 50 lakhs to Rs. 1 Crore	10%	10%
Rs. 1 Crore to Rs. 2 Crore	15%	15%
Rs. 2 Crore to Rs. 5 Crore	25%	25%
More than Rs. 5 Crore	37%	25%

Exemption on Leave Encashment

As per the new tax regime, a taxpayer will receive a leave encashment exemption. The exemption limit for non-government employees was increased eight times, from a small Rs. 3 lakhs to a hefty Rs. 25 lakhs, in the budget for 2023. According to Section 10(10AA), leave encashments up to Rs. 25 lakhs are therefore tax-free upon retirement. 

No Income Tax on Income up to Rs. 7 Lakh

The slab rates will be used to determine the income tax first when calculating taxes. The refund will then be subtracted from the total tax amount, bringing it down to zero. It suggests that if a taxpayer's income is less than Rs. 7 lakhs, they are exempt from paying taxes under the new tax regime. Under the new tax system, a standard deduction of Rs. 50,000 is also available to salaried individuals. Therefore, if a taxpayer (one who receives a salary) chooses to use the new tax regime, they are exempt from paying taxes if their income is less than or equivalent to Rs. 7.5 lakhs.

Update in Taxes on Capital Gains

The following major adjustments to the tax implications of capital gains have been made in Budget 2024:

• All listed securities now have a simpler holding time for deciding whether they are long-term or short-term capital assets. A period of 12 months should be taken into consideration, and for other assets, a period of 24 months should be taken into consideration.

  
  

• Additionally, starting on July 23, 2024, no indexation will be offered for the sale of any long-term capital asset.

  
  

• As of July 23, 2024, the Long-Term Capital Gain (LTCG) Tax Rate under Sections 112A and 112 has been modified to 12.5%. 

  
  

• As of July 23, 2024, the Short-Term Capital Gain (STCG) Tax Rate under Section 111A has been raised to 20%.

  
  

• Additionally, the Rs. 1 lakh exemption limit under section 112A has been raised to Rs. 1.25 lakhs. 

  
  

• The buyback tax has been redesigned, and effective October 1, 2024, buybacks will be taxable in the recipient's hands as considered dividends.

Updates in Presumptive Taxation

A simplified approach offered by tax authorities to determine taxable income for specific qualified firms or occupations is known as the presumptive scheme of taxation. Instead of keeping thorough books of accounts and completing intricate computations, taxpayers are permitted to declare income under this scheme at a predetermined rate based on specific assumptions. In both the old and current tax regimes, the presumptive tax structure operates in the same way.

Category	Turnover Receipts Before Budget 2023	Turnover Receipts After Budget 2023
Section 44AD- Small Business Owners	Rs. 2 Crore	Rs. 3 Crore*
Section 44ADA- Specified Professionals, such as doctors, freelancers, lawyers, engineers, interior decorators, etc.	Rs. 50 lakhs	Rs. 75 lakhs*

Life Insurance Policies Tax Treatment

The Budget 2023 announcement states that starting on April 1, 2023, the policyholder will be subject to taxes on the profits from life insurance policies with an annual premium of more than Rs. 5 lakhs. Note that Unit Linked Insurance Plans (ULIPs) will not be affected by the related changes to the income tax rules. Until the premiums paid on a life insurance policy do not exceed 10% of the sum assured, the amount derived from the policy is tax deductible.

However, there have been instances where individuals have abused this exemption by purchasing expensive insurance plans and requesting larger tax deductions. Therefore, if the annual premium paid out exceeds Rs. 5 lakhs in a single year, the money received from life insurance contracts will be taxable under the new tax regime.

Transitioning to the Old Tax Regime

The new income tax regime became the default tax regime in the fiscal year 2023–2024. You will have to file Form 10-IEA with your tax return if you intend to revert to the previous tax regime later. Your income type determines how frequently you transition between the old and new tax regimes. You can only switch between the two tax regimes just once if the income is from a business or profession. However, you can alternate between the old and new tax regimes on an annual basis if the income is not from a company or professional source.

Conclusion

Taxpayers need to keep track of the changes in tax rules and guidelines every year to ensure compliance and timely and accurate filing. The best way to stay updated with the changes and file your return correctly is by collaborating with an expert. They ensure that you get the best benefits of the available deductions and exemptions to minimise your tax liability.

Frequently Asked Questions

How to decide between the old and new tax regime?

You can calculate the tax savings under any of these regimes with the aid of an income tax calculator. You can then select the tax system that offers the greatest advantages.

Was the standard deduction limit increased under Budget 2024?

Yes, the standard deduction ceiling for paid employees who want to use the new regime has been hiked to Rs. 75,000

Is it possible to claim tax benefits under section 80C as per the new tax regime?

No, you cannot claim tax benefits under section 80C if you opt for the new tax structure.

What is the rate of tax applicable to Long Term Capital Gains?

The rate of 12.5% is applicable to LTCG on sales made after July 23, 2024.

Is the amount from the Agniveer Corpus Fund be tax deductible in both old and new tax regimes?

Section 10(12C) states that withdrawals from the Agniveer Corpus Fund are tax-exempt, regardless of whether the taxpayer chooses the old or new tax regime. The Agniveer Corpus Fund is open to contributions from everyone who has signed up for the Agnipath program. Additionally, the government will contribute equally. According to the new section 80CCH, these two contributions will be tax deductible from income. Furthermore, under the recently enacted section 10(12C), the money received at the end of your employment would be tax-exempt.