This Government has prioritised a simpler tax regime wherein reduced tax rates could be availed at the cost of certain exemptions and deductions under the Income-Tax Act. Such a mechanism ensures equity in application of tax rates. In 2019, the benefit of concessional tax rates was introduced for corporates and vide the Finance Act, 2020 a similar scheme was introduced for individuals and HUF.
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The new taxation regime introduced vide section 115BAC, which had to be opted in to, revised the slab rates applicable to individuals and provided that total income had to be computed without giving the benefit of certain exemptions (such as, LTA, HRA) and deductions (such as, standard deduction from salary u/s. 16,investment allowance u/s. 80C).
An important aspect of opting into the new regime was that once opted in, persons having business/professional income could only opt out of the regime once and thereafter, would be prevented from opting back in. However, persons not having such income could freely opt in and out of the new regime every year.
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In order to provide further relief to individual taxpayers, the Legislature in 2023 amended the new taxation regime to inter-alia provide for the following:
• The basic exemption limit was raised to Rs. 3 lakhs from Rs. 2.5 lakhs.
• The standard deduction from salary u/s. 16 was reintroduced.
• A 100% rebate of income-tax u/s. 87A has been provided to individuals having total income up to Rs. 7 lakhs
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Another important change which has been introduced is that the new tax regime has been made the default starting from FY 2023-24. This means that unless the persons, to whom it is applicable, do not specifically opt out from it, the new tax regime would automatically apply to them:
• Persons not having business/professional income can continue to freely opt in and out of the new regime every year by choosing their preferred regime while filing ITR – 1 (SAHAJ).
• However, persons having business/professional income can only opt out of the new regime once by filing Form 10IEA on or before filing of ITR – 4 (SUGAM).
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The taxpayers will have to carefully consider the pros and cons of each of the schemes and where the taxpayers intend to pay tax as per traditional modes, they will have to opt out by making necessary compliances. Failure to do so may result in computation of tax as per the new regime and denial of intended exemptions/deductions.
