New Tax Regime: What has changed? How can you opt for it?

Recently, there has been some misinformation circulating on certain social media platforms regarding a purported new tax regime set to be implemented from April 1, 2024. To address this, the Finance Ministry has issued a clarification, debunking the false claims and providing accurate information regarding the tax regulations. Here are the key points clarified by the Finance Ministry:

The default tax regime, announced by Union Finance Minister Nirmala Sitharaman in the Union Budget 2023-24, brought several changes. Under this regime, the basic exemption limit was raised to ₹ 3 lakh from ₹ 2.5 lakh, and the rebate under Section 87A of the Income Tax Act, 1961, was raised from ₹ 5 lakh to ₹ 7 lakh.

Consequently, individuals earning up to ₹ 7 lakh annually will receive a complete tax rebate under the new tax regime, exempting them from paying any income tax.

Tax slab comparison between old and new tax regime (Source: Finance Ministry)

Here are some important points that the taxpayers need to know —

No New Change from April 1, 2024: Contrary to the misleading information, there is no new tax regime coming into effect from April 1, 2024.
Introduction of Section 115BAC(1A) in Finance Act 2023: The new tax regime under section 115BAC(1A) was introduced in the Finance Act 2023. This new regime, applicable for individuals other than companies and firms, offers lower tax rates compared to the existing old regime, albeit without various exemptions and deductions.
Applicability and Assessment Year: The new tax regime is applicable as a default regime from the Financial Year 2023-24, with the corresponding Assessment Year being AY 2024-25.
Tax Rates and Exemptions: Under the new tax regime, tax rates are significantly lower, but the benefit of various exemptions and deductions (except for standard deductions) available in the old regime is not applicable.
Option to Choose Tax Regime: Taxpayers have the flexibility to choose between the old and new tax regimes based on what they perceive to be more advantageous for them. For individuals excluding companies and firms, the new tax regime becomes the default option starting from the financial year 2023-24, with the corresponding assessment year being AY 2024-25. The new tax regime is automatically applicable unless an individual actively chooses to opt for the old regime.
Opting Out and Flexibility: Taxpayers have the option to opt out from the new tax regime until the filing of the return for AY 2024-25. Additionally, eligible individuals without business income can choose the regime for each financial year, allowing them to alternate between the old and new regimes as per their preference.

The Finance Ministry's clarification emphasizes that there is no tumultuous changes in the new tax regime. The information circulating on social media platforms regarding this matter is inaccurate, and taxpayers are advised to refer to official sources for correct information on tax regulations and provisions.