Major Amendments by the Finance Act 2023
The Finance Act 2023 has significantly amended Section 115BAC, making the new tax regime the default for Assessment Year (AY) 2024-25. This applies to individuals, Hindu Undivided Families (HUFs), Association of Persons (AOPs) (excluding cooperative societies), Body of Individuals (BOIs), and Artificial Juridical Persons. Taxpayers still have the option to opt out of the new regime and choose the old regime, which allows for various deductions and exemptions. Conversely, the new regime offers lower tax rates but without most deductions and exemptions.
Critical Change in ITR Utility from July 5, 2024
From July 5, 2024, a crucial update has been made to the Income Tax Return (ITR) utility, altering how the rebate under the new tax regime is availed due to language interpretation in the law. Understanding the updated slab rates is essential to ensure compliance and accuracy in filing returns.
Impact on Income Tax Returns Filed Before July 5, 2024
- Old ITR Utility: Returns filed before this date used the previous version of the ITR utility.
- Rebate Claim: The rebate under Section 87A was claimed based on the earlier understanding and interpretation of the law.
- Possible Discrepancies: Any errors or discrepancies in claiming the rebate may necessitate filing a revised return or addressing notices from the Income Tax Department.
Impact on Income Tax Returns Filed After July 5, 2024
- Updated ITR Utility: Returns filed on or after this date must use the updated ITR utility, which incorporates changes in the rebate method under the new tax regime.
- Correct Rebate Claim: The new utility ensures the rebate is claimed correctly according to the updated provisions.
- Awareness Required: Taxpayers must be aware of the updated rebate conditions and slab rates to avoid errors and ensure compliance.
Choosing the Tax Regime
Non-Business Cases
Taxpayers can choose their preferred tax regime each year directly in the ITR filed on or before the due date specified under Section 139(1).
Business and Profession Cases
Taxpayers must furnish Form 10-IEA on or before the due date under Section 139(1) for filing the return of income to switch regimes. This option can only be changed once in a lifetime for these taxpayers.
Updated Income Tax Rates for Individuals
Under the new regime, the income tax rates are as follows:
- Up to ₹2,50,000 - Nil
- ₹2,50,001 to ₹5,00,000 - 5%
- ₹5,00,001 to ₹7,50,000 - 10%
- ₹7,50,001 to ₹10,00,000 - 15%
- ₹10,00,001 to ₹12,50,000 - 20%
- ₹12,50,001 to ₹15,00,000 - 25%
- Above ₹15,00,000 - 30%
Rebate under Section 87A
Old Tax Regime
- Rebate: Up to ₹12,500
- Applicable if total income does not exceed: ₹5,00,000
New Tax Regime
- Rebate: Up to ₹25,000
- Applicable if total income does not exceed: ₹7,00,000
The rebate under Section 87A is not available for Non-Resident Indians (NRIs) and HUFs. It is only available for individual residents.
Marginal Relief under Section 87A for New Tax Regime
A new amendment to Section 87A introduces marginal relief, applicable only under the new tax regime. This ensures that a slight increase in income above ₹7,00,000 will not immediately disqualify a taxpayer from receiving the rebate. Instead, the taxpayer will pay only a small amount for the excess income. The tax payable will not exceed the income of more than ₹7,00,000. Thus, the tax amount will be less than the difference between the total taxable income and ₹7,00,000.
Conclusion
These changes highlight the importance of understanding the updated tax provisions and using the correct ITR utility version. Taxpayers must stay informed about the new rebate conditions and slab rates to ensure accurate and compliant tax filings.
