Budget 2023 makes new tax regime default option but old tax regime to remain available
People, who fall in higher income tax brackets and are eligible for various exemptions and deductions under the old tax regime, typically prefer the old tax regime. While the next tax regime will become the default regime, however the old tax regime will continue and people who wish to receive old exemptions and deductions can opt for the old one.
In the absence of any serious tax saving and lower income tax bracket, the new tax regime had very few takers so far. However, the budget 2023 has made significant changes such as section 87A rebate till Rs 7 lakh income and introduction of standard deduction of Rs 50,000 to make it more attractive to the taxpayers.
Besides the added attractions of rebates and deductions, the government has also tweaked the tax slab rates. As per the revised tax slab under new tax regime there is zero tax on income upto Rs 3 lakh, 5% on income above Rs 3 lakh to Rs 6 lakh, 10% on income above Rs 6 lakh to Rs 9 lakh, 15% on income above Rs 9 lakh to Rs 12 lakh, 20% on income above Rs 12 lakh to Rs 15 lakh and 30% on income above Rs 15 lakh.
The explanatory memorandum to the budget 2023 states
The above-mentioned rates shall apply to all individuals or Hindu undivided families or associations of persons [other than a co-operative society], or body of individuals, whether incorporated or not, or an artificial juridical person referred to in sub-clause (vii) of clause (31) of section 2, unless an option is exercised under proposed sub-section (6) of section 115BAC . Thus, rates given in sub-section (1A) of section 115BAC of the Act are the default rates.
Further, the income-tax payable in respect of the total income of the person [other than a person who has exercised an option under sub-section (6) of section 115BAC], shall be computed without allowing for any exemption or deduction as provided under clause (i) of subsection (2) of section 115BAC of the Act. However, standard deduction as provided under clause (ia) of section 16 of the Act, deduction in respect of income in the nature of family pension as provided under clause (iia) of section 57 of the Act and deduction in respect of the amount paid or deposited in the Agniveer Corpus Fund as proposed to be provided under subsection (2) section 80CCH of the Act, shall be allowed for the purposes of computing the income chargeable to tax under sub-section (1A) of section 115BAC.
If an option is exercised under sub-section (6) of section 115BAC, then nothing contained in sub-section (1A) of section 115BAC shall apply in respect of such person. The option is required to be exercised, –
(i) on or before the due date specified under sub-section (1) of section 139 of the Act for furnishing the return of income for such assessment year, in case of a person having income from business or profession, and such option once exercised shall apply to subsequent assessment years; or
(ii) along with the return of income to be furnished under sub-section (1) of section 139 of the Act for such assessment year, in case of a person not having income referred to in clause (i)