Key changes to new income tax regime FY 2025-26 (AY 2026-27)

Update: New tax regime slab rates for Financial Year 2025-26 (AY 2026-27)

Here are the key changes proposed in budget 2025 for an individual.

Other changes:

• Annual limit of Rs 2.4 lakh for TDS on rent raised to Rs 6 lakh
• Limit for tax deduction for senior citizens to be doubled to Rs 1 lakh

We will be updating all other changes to this article soon.

Changes applicable to financial year 2023-24 (AY 2024-25)

Every year in the union budget an annual financial statement is presented by the finance minister in the Parliament of India in order to outline the revenue and expenditures for the upcoming financial year. In the 2023 budget, union minister of finance and corporate affairs, Nirmala Sitharaman announced major income tax changes. Let’s dive into these key income tax changes to understand what this means for salaried individuals and self-employed business owners.

5 key changes to new income tax regime for the financial year 2023-24 (AY 2024-25)

Basic exemption limit increased

The basic exemption limit which was Rs 2, 50,000 is now increased under the new tax regime to 3, 00,000 rupees.

Now, individuals with an income up to 3, 00,000 rupees are not required to pay any income tax under the new tax regime.

Income tax slabs under the new tax regime for FY 2023-24 (AY 2024-25)

In our budget 2023, honorable finance minister,  Nirmala Sitharaman, has announced changes to income tax slabs under the new tax regime in order to make it more attractive for individual taxpayers.

As per the new income slab, the basic exemption limit applicable to an individual has been increased from 2.5 lakh rupees to 3.00 lakh rupees.

For every additional Rs 3,00,000 income, the new slab rate will be applicable. The highest rate of 30% is fixed for income above 15,00,000 rupees.

The individual has the option to opt for the old tax regime if it benefits them.

Here is a table showing new income tax rates applicable to financial year 2023-24 (assessment year 2024-25) for opting to pay taxes as per the new tax regime under section 115BAC.

In addition to the above tax rates Cess @ 4% will be added to the income tax amount.

Surcharge will be applicable on taxable incomes if it’s above Rs 50 lakh for the financial year.

The above new income tax rates are applicable from 1^st of April 2023, for the income earned between April 1, 2023 and March 31, 2024.

Which means your employer will be deducting tax (TDS) based on these income tax rates if you have opted for a new tax regime. 

You are also required to calculate your own tax liability now based on these rates in order to know if you are liable to pay advance tax by opting for a new tax regime.

The last date to file your income tax return for the financial year 2023-24 (assessment year 2024-25) if your books of accounts are not required to be audited, is 31^st July 2024. Make sure that you file your income tax return on or before this deadline in order to avoid late fee, interest and penalty.

In case you have opted to pay tax as per the old tax regime, then there is no change to income tax slabs and rates. However, you can claim tax deductions based on your eligibility to reduce your tax liability, which individuals opting for a new tax regime will not be eligible for.

Income tax slabs for the financial year 2023-24 (AY 2024-25)-Effective from 1^st April 2023

Standard deduction is now available in new tax regime

Now, the standard deduction of 50,000 rupees is available under the new tax regime on salary income from financial year 2023-24, i.e. for incomes earned between April 1, 2023 and March 31, 2024.

Even family pensioners are allowed to claim standard deduction of Rs 15,000 under the new tax regime.

These standard deductions are allowed from financial year 2023-24 (assessment year 2024-25).

Threshold limit for tax rebate under section 87A increased

Another key change to the Income tax act, 1961 is increase of the taxable income threshold limit from 5, 00,000 rupees to 7,00,000 rupees in order to avail section 87A tax rebate for assessees opting for the new tax regime.

Due to this change, now an individual with taxable income of 7, 00,000 rupees will pay zero income tax if opted to pay tax under the new tax regime under section 115BAC.

In simpler terms, if your taxable income for the financial year 2023-24 (assessment year 2024-25) is below 7, 00,000 rupees, then you do not have to pay income tax under the new tax regime as 25,000 tax rebates can be claimed by you.

Surcharge reduced for high net worth individuals

Now the surcharge rate under the new tax regime for income above 5 crore rupees has been reduced from the earlier rate of 37% to 25%.

Which means if your income is above 5 Crore for the financial year 2023-24 (assessment year 2024-25), then the surcharge rate will be 25%.

Other relevant changes to income tax law

In our above article we have discussed 5 key changes to income tax law for the financial year 2023-24 (assessment year 2024-25) if you are opting for the new tax regime under section 115BAC to pay tax.

Here are a few more important changes you must know.

Receipts arising from life insurance policies issued on or after April 1st, 2023 shall be considered as income from other sources if the premium paid exceeds 5,00,000 rupees in a given financial year. The exemption for receipts in the event of the insured person’s death shall remain unchanged.

The threshold limits for presumptive taxation schemes under Section 44AD and Section 44ADA have been increased to INR 3 crores and INR 75 lakhs respectively, provided at least 95% of receipts and payments are made through non-cash methods. Section 44AB amended to remove the tax audit requirement for persons opting for such presumptive taxation schemes.

The Jawaharlal Nehru Memorial Fund, Indira Gandhi Memorial Trust, and Rajiv Gandhi Foundation have been excluded from the list of eligible funds for deductions under Section 80G.

If the recipient of EPF withdrawal does not provide his PAN, TDS on the withdrawal will be 20%, instead of the maximum marginal rate.