New Income Tax Rates and Slabs

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In Budget 2023, Finance Minister Nirmala Sitharaman made revisions to the income tax slab rates under the new tax system. 

The alterations to the new tax structure that have been announced for the fiscal year 2023–2024, which starts on April 1, 2023, are as follows: The new revenue regime requires, the minimum exemption amount to be increased from Rs 2.5 lakh to Rs 3 lakh. The new tax system becomes taxpayers' default choice. 

However, they do have the choice to stick with the previous tax system. The new tax system has changed the income tax slabs. Under the new tax system, a standard deduction of Rs 50,000 was made available to salaried individuals and pensioners. For taxable incomes up to Rs 7 lakh, the Section 87A rebate rose under the new tax system. If individuals choose the new tax system in FY 2023–24, they will not be required to pay any taxes if their taxable income is less than Rs 7 lakh. The highest surcharge rate was decreased under the new tax system from 37% to 25%.

For FY 2023–2024, the income tax bracket and rates under the previous tax system stay the same. The deductions and exemptions that were permitted under the previous tax system remain unchanged as well. If taxable income does not exceed Rs 5 lakh, a rebate under Section 87A is available under the previous tax system.

Income tax rates under the new tax system for FY 2023–24 (AY 2024–25)

In the new tax system, modifications to the income tax slabs have been announced in Budget 2023. The income tax slabs have been altered to improve the appeal to individual taxpayers. The basic exemption threshold was increased by the budget from Rs 2.5 lakh to Rs 3 lakh.

The new tax system's income tax brackets are listed below.

Income tax rates under the new tax law for the years 2023–2024

announced adjustments to the new tax code for FY 2023–24

The modifications made to the new tax system to make it more appealing are listed below:

The new income tax system takes over as the default tax system. Therefore, income will be taxed at the new tax regime's slabs and rates unless a person specifically chooses the old tax system. The Section 87A tax credit amount has increased from Rs. 5 lakh (or Rs. 12,500 in tax credits) to Rs. In fact, this means that those who choose the new tax system and have taxable income up to Rs. 7 lakh will not be required to pay any taxes.

Previously, this tax credit was offered up to a taxable income of Rs 5 lakh. In the new tax system, the basic exemption ceiling was increased from Rs 2.5 lakh to Rs 3 lakh. 

There are now only five income tax brackets under the new tax code, down from six. Under the new tax law, a standard deduction of Rs. 50,000 has been made available to salaried individuals and pensioners. Under the new tax law, family pensioners can also claim a standard deduction of Rs.

Under the new tax law, the highest surcharge rate, previously 37%, has been lowered to 25%.

The new tax system's income tax brackets are in effect through FY 2022–23 (AY 2023–24).

The income tax slabs under the new tax regime are different from those previously indicated for FY 2022–23 (ending on March 31, 2023) and before.

How to compute the income tax due under the new tax system

Here is how to determine the amount of income tax due if you have chosen the new tax structure for the current fiscal year, or FY 2022–23.

Be advised that under the current tax code, only expenses listed in section 80CCD (2) of the Income-tax Act of 1961 may be written off. No additional exemptions or deductions are permitted under the new tax code.

Here is an example of how the new tax system may compute income tax.

Assume that a person would earn Rs 20 lakh in gross yearly income in FY 2022–2023. Additionally, the company has deposited Rs. 1.5 lakh into the customer's Tier-I NPS account. 

He can therefore claim a deduction as a result under Income-tax Act section 80CCD(2)

How to determine net taxable income under the new tax system

Therefore, after subtracting Rs 1.5 lakh from Rs 20 lakh, the net taxable income that would be used to determine the amount of income tax due is Rs 18.50 lakh.

Up to Rs 2,50,000 of income are free from taxation under the new income tax system. Therefore, there won't be any tax due on this revenue. After this, there is a balance of Rs 16,00,000 in income that is still subject to tax (Rs 18,50,000 minus Rs 2,50,000).

The following slab is from Rs 2.5 lakh to Rs 5 lakh. This means that 5% of the sum of Rs 16,00,000 will be taxed, or Rs 2.5 lakh (Rs 5 lakh minus Rs 2.5 lakh). Here, Rs 12,500 in tax will be due.

After this, there is a balance of Rs 13,50,000 in income that is still subject to tax (Rs 16,00,000 minus Rs 2,50,000). The following bracket ranges from Rs. 5 lakh to Rs. 7.5 lakh. The subsequent Rs 2.5 lakh (Rs 7.5 lakh minus Rs 5 lakh) from Rs 13,50,000 will be subject to 10% tax. The amount of income tax due is calculated to be Rs 25,000.

(Rs 13,50,000 minus Rs 2,50,000) The remaining revenue is Rs 11,00,000. The following income tax bracket ranges from Rs 7.5 lakh to Rs 10 lakh. As a result, 15% tax will be applied to the Rs 2.5 lakh (Rs 10 lakh less Rs 7.5 lakh) of Rs 11,00,000. The tax obligation will be for Rs. 37,500.

The remaining income that is still subject to tax is worth Rs. 8,50,000 (or Rs. 11,00,000 less Rs. 2.5 lakh). The following bracket ranges from Rs. 10 lakh to Rs. 12,50,000. The following Rs 2,50,000 out of Rs 8,50,000 will be subject to Rs 20% tax. The amount of tax due is Rs. 50,000.

(Rs 8,50,000 minus Rs 2,50,000) The remaining income that is still subject to tax is Rs 6,00,000. Between Rs. 12,50,000 and Rs. 15,00,000 is the following slab. The subsequent Rs 2,50,000 (Rs 15,00,000 minus Rs 12,50,000) from Rs 6,00,000 will be subject to a 25% tax. The tax obligation will be for Rs. 62,500.

Currently, the remaining revenue is Rs 3,50,000 (Rs 6,00,000 minus Rs 2,50,000). This will be subject to taxation at the 30% rate for the last tax bracket, or above Rs 15,00,000. The amount of tax due is Rs. 105,000.