Income-tax on Individuals / HUF / AOP / BOI or Artificial Judicial Persons for the financial year 2023-24, relevant to the assessment year 2024-25

Under the Income Tax law of India, every income earned during the financial year by any person is chargeable to income tax in the assessment year as per the provisions given under section 4 of the Income-tax Act, 1961. The rates at which tax is to be charged on such income are prescribed in the Income-tax Act or the Finance Acts presented annually in the budget by the Government of India.

Currently, the Finance Act, 2023 outlines two tax schemes for computing tax on the total income (i.e. taxable income) earned by Individuals / HUF / AOP / BOI or Artificial Judicial Persons during the financial year 2023-24, relevant to the assessment year 2024-25. The choice to opt for the most beneficial scheme among these two tax schemes undoubtedly rests with the taxpayer himself. Both the tax schemes are outlined below for an easy comparison.

Optional Tax Regime (also known as Old Tax Scheme)

As the name of the scheme suggests you have to select the option under the ITR form for this regime and the Person who opts for this scheme has to pay tax in respect of the total income (other than income chargeable to tax at special rates such as section 111A, 112, 112A, 115BB, 115BBJ, etc.) at the following rates as specified in the Finance Act, 2023;

S No	Total Income	Rate of Tax
1	Upto ₹2,50,000	Nil
2	From ₹2,50,000 to ₹5,00,000	5%
3	From ₹5,00,000 to ₹10,00,000	20%
4	Above ₹10,00,000	30%

Note: The tax amount as calculated above shall be increased by Health & Education Cess at the rate of 4% of such tax.

However, the basic exemption limit (i.e. initial income slab where the tax rate is NIL) is ₹3,00,000 for senior citizens, being 60 or more but less than 80 years of age, and ₹5,00,000 for super senior citizens, being 80 or more years of age.

It is pertinent to mention that if any individual taxpayer, being resident in India, has a total taxable income of ₹5,00,000 or less during the financial year 2023-24, then s/he does not have to pay any taxes thereon. Here, section 87A of the Act provides a rebate of tax up to a maximum of ₹12,500.

Default Tax Regime (also known as New Tax Scheme)

As the name of the scheme suggests that this is the default option under the ITR form, you do need not to select this option separately.  You have to pay tax in respect of the total income (other than income chargeable to tax at special rates) at the following concessional rates as stipulated under 115BAC(1A) of the Income Tax Act, 1961;

S. No	Total Income	Rate of Tax
1	Upto ₹3,00,000	Nil
2	From ₹3,00,000 to ₹6,00,000	5%
3	From ₹6,00,000 to ₹9,00,000	10%
4	From ₹9,00,000 to ₹12,00,000	15%
5	From ₹12,00,000 to ₹15,00,000	20%
6	Above ₹15,00,000	30%

Note: The tax amount as calculated above shall be increased by Health & Education Cess at the rate of 4% of such tax.

Provided that a taxpayer is not liable to pay any tax if his total income does not exceed ₹7,00,000 for the financial year 2023-24. Here, clause (a) of the first proviso to section 87A provides a rebate of tax up to a maximum of ₹25,000.

Here marginal relief is available, if the total income exceeds ₹7,00,000 and income tax payable on such income exceeds the amount of income in excess of ₹7,00,000, clause (b) of first proviso to section 87A provides a rebate of tax equal to an amount by which such income tax payable exceeds the amount of income in excess of ₹700000. In other words, wherein income tax payable on such income exceeds the amount of income in excess of ₹700000, then such amount of income in excess of ₹7,00,000 would be the tax payable.

Deductions & Exemptions allowed under Default Tax Regime

Unlike the Optional Tax Regime wherein all the relevant deductions or exemptions are allowed, only certain deductions or exemptions are allowed under the Default Tax Regime, which are as undermentioned;

S. No	Deductions / Exemptions	Relevant Section	Maximum Limit
1	Standard Deduction	16(ia)	₹ 50,000
2	Interest on home loan taken on rented property	24(b)	Amount of Interest
3	Employer’s contribution to NPS	80CCD(2)	14% of salary (Basic+DA), if Central or State Govt employee; otherwise 10% of salary
4	Contribution to Agniveer Corpus Fund	80CCH	Amount contributed
5	Additional Employee Costs	80JJAA	Refer relevant section
6	Deduction of Family Pension Income	57	1/3rd of such income or ₹15000, whichever is less
7	Gifts upto ₹50000	56(2)	₹ 50,000
8	Exemption on gratuity	10(10)	As per limit
9	Exemption on leave encashment	10(10AA)	As per limit
10	Exemption on voluntary retirement	10(10C)	As per limit
11	Daily Allowance	10(14)(i)	Actual amount spent
12	Conveyance Allowance	10(14)(i)	Actual amount spent
13	Travel, tour or transfer compensation	10(14)(i)	Actual amount spent
14	Transport Allowance for a specially abled person	10(14)(ii)	₹3200 per month

Additional Notes:

• In a case where total income exceeds ₹50 lacs, the surcharge is also applicable in addition to tax & cess payable on such income. The rates of surcharge range from 10% to 37% under the Optional Tax Regime & 10% to 25% under the Default Tax Regime.

• Income chargeable to tax at special rates as indicated above are taxed separately at below rates

S. No	Particulars of income	Relevant section	Rate of tax
1	Long-term capital gains (LTCG)	112	20%
2	Long-term capital gains (LTCG)	112A	10% on LTCG in excess of ₹1,00,000
3	Short-term capital gains (STCG)	111A	15%
4	Winnings from lotteries, crossword puzzles, races including horse races, card games, gambling or betting	115BB	30%
5	Income from Virtual Digital Assets (VDA)	115BBH	30%
6	Net winnings from online games	115BBJ	30%

A taxpayer with a total income amounting to ₹7,00,000 or less should opt to pay tax under Default Tax Regime, as there would be no tax payable. However, if the total income exceeds ₹7,00,000 for the financial year, he should compute taxes under both the schemes and opt the most beneficial among these two schemes.