Old Tax Regime

Under the Old Tax Regime, the applicable slab rates are as follows:

• Income up to Rs 2.5 lakh is exempt from tax.
• Income between Rs 2.5 lakh and Rs 5 lakh is taxed at 5%.
• Income between Rs 5 lakh and Rs 10 lakh is taxed at 20%.
• Income above Rs 10 lakh is taxed at 30%.

For Senior Citizens who are aged 60 to 80 years, the basic exemption limit is Rs 3 lakh, while for Super Senior Citizens who are aged above 80 years, it is Rs 5 lakh.

A standard deduction of Rs 50,000 is allowed under this regime. Additionally, a rebate under section 87A is available to resident individuals whose taxable income is up to Rs 5 lakh, offering a maximum rebate of Rs 12,500.

The Old Tax Regime is beneficial for those who wish to claim various exemptions and deductions, such as HRA, LTA, 80C, 80D, and others.

New Tax Regime (u/s 115BAC – Default regime)

Under the New Tax Regime, Section 115BAC, which is now the default tax regime from FY 2024–25 onwards, the slab rates are structured differently and offer limited deductions and exemptions. The tax slabs applicable under this regime are:

• Income up to Rs 3 lakh is exempt from tax.
• Income between Rs 3 lakh and Rs 7 lakh is taxed at 5%.
• Income between Rs 7 lakh and Rs 10 lakh is taxed at 10%.
• Income between Rs 10 lakh and Rs 12 lakh is taxed at 15%.
• Income between Rs 12 lakh and Rs 15 lakh is taxed at 20%.
• Income above Rs 15 lakh is taxed at 30%.

A standard deduction of Rs 75,000 is now applicable from FY 2024–25 onwards. A rebate under section 87A is available for resident individuals if the taxable income is up to Rs 7 lakh, providing full tax relief under this regime. Additionally, marginal relief is available for income slightly exceeding Rs 7 lakh to ensure that the tax payable does not exceed the excess income over Rs 7 lakh.

It is important to note that the rebate is not applicable to income taxed at special rates, such as capital gains under Section 112A. The New Regime offers very limited deductions and exemptions, including:

• Standard deduction on the salary of Rs 75,000,
• Transport allowance for handicapped persons,
• Standard deduction on family pension up to Rs 25,000
• Employer’s contribution to NPS under section 80CCD(2),
• Contributions to the Agniveer Corpus Fund under section 80CCH, and

Deduction to housing loan interest for let-out property only.

Health, Education Cess and Surcharge

In addition to income tax, a surcharge is levied on the basis of the taxpayer’s net taxable income. The applicable surcharge rates are as follows: For income between Rs 50 lakh and Rs 1 crore, the surcharge rate is 10%; for income between Rs 1 crore and Rs 2 crore, it is 15%; for income between Rs 2 crore and Rs 5 crore, the rate is 25%; and for income above Rs 5 crore, the surcharge is 37% under the Old Tax Regime, but it is capped at 25% under the New Tax Regime.

Additionally, a Health and Education Cess of 4% is applicable on the total of income tax plus surcharge under both regimes.

Marginal Relief on surcharge

To ensure that taxpayers are not unfairly burdened due to sudden jumps in surcharge rates, marginal relief is provided. This relief applies across different income ranges to ensure that the additional tax (including surcharge) does not exceed the excess income over the threshold.

For net income between Rs 50 lakh and Rs 1 crore, the total tax, including surcharge, should not exceed the tax payable on Rs 50 lakh by more than the income exceeding Rs 50 lakh. Similarly, for income between Rs 1 crore and Rs 2 crore, the total tax and surcharge should not exceed the tax on Rs 1 crore by more than the excess income over Rs 1 crore. This same principle applies to income ranges between Rs 2 crore and Rs 5 crore and for income above Rs 5 crore as well.

This mechanism of marginal relief ensures a fair and balanced tax burden across different income brackets, preventing disproportionately high tax liability due to a marginal increase in income.

Opt-in or Opt-out—New Tax Regime?

The choice between the Old Tax Regime and the New Tax Regime depends on the nature of income and specific rules prescribed by the Income Tax Department.

For income from salary or any other head of income that attracts TDS, the employee is required to make the choice of tax regime at the beginning of the financial year. Once selected, this choice cannot be changed during the year for the purpose of TDS deduction by the employer. However, the employee can revise the choice while filing the Income Tax Return (ITR) at the end of the financial year.

In the case of income from business or profession, the rules are stricter. A taxpayer having such income can choose between the old and new tax regimes only once in a lifetime. Once opted out of the new regime, the taxpayer cannot opt back in in subsequent years.

Additionally, to opt in or opt out of the new tax regime, taxpayers filing ITR-3 or ITR-4 are required to submit Form 10-IEA as per the prescribed guidelines.

Rates of Capital Gains Tax

Long-Term Capital Gains and Short-Term Capital Gains

For capital gains arising from transfers made before 23rd July 2024, specific tax rates apply along with the availability of indexation benefits in certain cases.

In the case of Long-Term Capital Gains (LTCG), if the sale involves listed equity shares or units of equity-oriented mutual funds (provided Securities Transaction Tax has been paid both on purchase and sale, or at least on sale in the case of mutual funds), the applicable tax rate is 10% on gains exceeding Rs 1 lakh. For other long-term assets, the tax rate is 20%, and an indexation benefit is available.

Regarding Short-Term Capital Gains, the tax rate will depend on whether STT applies or not. If STT does not apply, then we are taxing according to the normal income tax slab rates of the individual. If STT applies, which is the case when dealing with listed equity shares and certain mutual funds, the capital gains are taxed at a flat rate of 15%.

From 23 July 2024

For transfers made on or after 23rd July 2024, the taxation of capital gains has been revised.

In the case of Long-Term Capital Gains (LTCG) from the sale of listed equity shares (where Securities Transaction Tax has been paid on both purchase and sale) or units of equity-oriented mutual funds (where STT has been paid on sale), the applicable tax rate is 12.5% on gains exceeding Rs 1.25 lakh.

For the sale of land, building, or both, the tax rates differ by taxpayer type and indexation benefit:

For individual and HUF taxpayers, the gain can be taxed at 12.5% without indexation or 20% with indexation, depending on the taxpayer’s preference.

For other persons, the applicable rate is 12.5% without indexation.

For all other long-term assets, a flat rate of 12.5% is applicable.

Where there is a case of Short-Term Capital Gains (STCG) and STT is not applicable, the gains are assessed under the normal income tax slab rates; where STT is applicable, the gains now fall under a flat 20% taxation under the amended provisions.

Equity and Debt Mutual Fund Tax Rates

Gains made on the sale of debt funds and equity funds are treated differently under the Income Tax provisions. Any mutual fund that invests more than 65% of its total portfolio in equities is classified as an equity fund.

For funds taken on or before 1st April 2023, for tax purposes, the funds’ business type and holding period should be factored in. In the case of debt funds, short-term capital gains are taxed at the individual’s applicable income tax slab rates, while long-term capital gains are taxed at 20% with indexation. For equity funds, short-term capital gains are taxable at 15%, while long-term capital gains are taxable at 10% on gains over Rs 1.25 lakh, with no indexation.

The classification of gains for funds acquired after 1st April 2023 may change under the classification of gain provisions due to changes in tax legislation.

Notes:

Note: A 10% tax without indexation, with an exemption limit of Rs 125,000, is applicable when the transfer happens on or before 23rd July 2024. A revised tax rate of 12.5% without indexation is applicable for transfers made on or after 23rd July 2024.

Note: Irrespective of the holding period, with effect from 1st April 2023, the capital gains on the sale of Debt Mutual Funds, Market Linked Debentures (MLDs), and Unlisted Bonds or Debentures are always considered short-term and taxed at the normal income tax slab rates of the individual.

Income from Lottery, Gambling, Betting, Card Games, and Online Gaming

Income earned through lottery, gambling, betting, and similar activities is taxed at a flat rate of 30%. Tax Deducted at Source (TDS) is also applicable at 30% under section 194B, and no deductions or expenses are allowed against such income.

Income from horse racing is similarly taxed at a flat 30% rate, with TDS at 30% under section 194BB.

For online gaming, effective from 1st April 2023, winnings are taxed at 30%, and TDS is applicable on net winnings under section 194BA. This TDS is applicable either at the time of withdrawal or at the end of the financial year, whichever is earlier.

No deduction is allowed under Chapter VI-A, and no rebate under section 87A is available for any of these incomes.

Tax Provisions on Virtual Digital Assets

As per Section 2(47A) of the Income Tax Act, Virtual Digital Assets (VDAs) include cryptocurrencies such as Bitcoin and Ethereum, Non-Fungible Tokens (NFTs), and any other digital asset as may be notified by the government.

Under Section 115BBH, income arising from the transfer of VDAs is taxed at a flat rate of 30%. In addition, surcharge and health & education cess are applicable as per the taxpayer’s income level. No deductions are allowed from such income except the cost of acquisition. Losses incurred from VDAs cannot be set off against any other income, and they cannot be carried forward to future years.

If a VDA is received as a gift, and its value exceeds Rs 50,000, it is taxable in the hands of the recipient under Section 56(2)(x). Additionally, TDS at 1% is applicable under Section 194S if the total payment exceeds Rs 10,000 in a financial year, or Rs 50,000 for specified persons. This TDS applies to all transactions, whether in cash or in kind, including crypto-to-crypto transfers.

For example, if you buy Bitcoin for Rs 100,000 and later sell it for Rs 150,000, the gain of Rs 50,000 will be taxed at 30%, resulting in a tax of Rs 15,000, excluding surcharge and cess. No slab benefit, deductions, or loss adjustment is permitted on such income.