ITR changes for FY 2023-24

ITR changes for FY 2023-24

FY 2023-24 (Assessment Year 2024-25) introduced the new tax regime under Section 115BAC as the permanent legislative default for all individuals and HUFs, extended the Section 87A rebate to Rs. 7 lakh total income, overhauled debt mutual fund taxation, and expanded AIS pre-fill to near-universal coverage. Every taxpayer who filed — or still needs to file a revised or updated return for that year — must understand these structural shifts, because errors made then continue to generate demand notices, refund delays, and ITR-U obligations in 2026.

New Tax Regime Becomes the Default Under Section 115BAC

From 1 April 2023 — the very first day of FY 2023-24 — the new tax regime under Section 115BAC became the default regime for all individuals and HUFs. This is a legislative amendment, not a mere Budget announcement. If you filed your ITR without explicitly specifying a choice, the system applied the new regime automatically. Inaction equalled the new regime.

New regime tax slabs for FY 2023-24

The standard deduction of Rs. 50,000 was extended to salaried individuals and pensioners under the new regime from FY 2023-24 itself. (It was subsequently raised to Rs. 75,000 from FY 2024-25 onwards, but for the year under review the figure is Rs. 50,000.) The family pension deduction of Rs. 15,000 was also extended to new-regime filers.

How to opt back into the old regime — the two-step process

If you wanted deductions under Chapter VI-A — Section 80C for PF and life insurance, Section 80D for health insurance, HRA exemption under Section 10(13A), home-loan interest under Section 24(b) — you had to actively opt out at two points:

1. With your employer at the start of the year. Inform your employer in writing before April so that TDS is deducted under the old regime. If you did not, your employer defaulted to the new regime for TDS purposes.
2. While filing the ITR. Salaried employees with no business income could switch regimes at the time of ITR filing without filing Form 10-IEA. However, if your employer deducted TDS under the new regime and you switch to the old regime at filing, you will typically get a refund — but refund processing timelines in AY 2024-25 stretched to several months for many such cases.

Business-income lock-in: If you have income from business or profession and you opt into the old regime, you are locked in for that year and all subsequent years. You get only one opportunity to exit to the new regime.

Section 87A Rebate: The Rs. 7 Lakh Threshold in Detail

Section 87A provides a rebate that offsets your entire income tax liability if total income stays within the prescribed limit. For FY 2023-24 under the new regime:

• Rebate ceiling: Up to Rs. 25,000 of tax liability is fully wiped out.
• Income threshold: Total income must not exceed Rs. 7,00,000.

This means a resident individual with total income up to Rs. 7 lakh pays zero income tax under the new regime. Under the old regime, the rebate threshold remains Rs. 5 lakh with a rebate of up to Rs. 12,500.

The special-rate income controversy

A widespread source of confusion in AY 2024-25 was whether the rebate could offset tax on special-rate incomes — particularly short-term capital gains (STCG) under Section 111A taxed at 15%, or VDA gains taxed at 30% under Section 115BBH. The Income Tax Department's position, reflected in the ITR filing utility, is that Section 87A rebate is not available against tax computed at special rates.

Practical implications:

• If your salary income is Rs. 6,50,000 and you also have STCG of Rs. 60,000, your total income is Rs. 7,10,000 — above the Rs. 7 lakh threshold. The rebate is lost entirely.
• Even if total income is Rs. 6,80,000 (including Rs. 50,000 STCG), the rebate applies only to the tax on income taxed at regular slab rates, not to the 15% STCG tax.

If your filed return claimed the rebate against special-rate tax, you may have received a demand notice under Section 143(1). Check your intimation and compute the difference.

Capital Gains Reporting for AY 2024-25

All transactions in FY 2023-24 occurred between 1 April 2023 and 31 March 2024 — entirely before the mid-2024 amendments brought by Finance (No. 2) Act, 2024 (effective 23 July 2024). The pre-amendment rules therefore apply throughout for this year.

Equity and equity mutual funds — Section 112A

• Long-term (held more than 12 months, STT paid): Gains exceeding Rs. 1,00,000 taxed at 10% without indexation.
• Short-term (12 months or less): Taxed at 15% under Section 111A.

Property and non-equity assets — Section 112

• Immovable property held more than 24 months: 20% with indexation using the Cost Inflation Index.
• Other assets (unlisted shares, gold, etc.) held more than 36 months: 20% with indexation.
• Short-term gains: taxed at applicable slab rates.

Debt mutual funds — the most-missed FY 2023-24 change

The Finance Act 2023 inserted Section 50AA with effect from 1 April 2023, removing the long-term capital gains treatment for specified mutual fund units (those investing less than 35% in domestic equities). Units purchased on or after 1 April 2023 are treated as short-term regardless of holding period, and gains are taxed at slab rates. Indexation is gone. LTCG rate of 20% is gone.

Units purchased before 1 April 2023 retain their pre-amendment treatment if held for more than 36 months. If you held a debt fund folio that combined pre- and post-April-2023 purchases, you needed to split the computation by acquisition date — many investors did not.

Schedule VDA: Reporting Crypto and Virtual Digital Assets

Schedule VDA is a mandatory disclosure for anyone who sold, transferred, gifted, or received cryptocurrency, NFTs, or any other virtual digital asset during FY 2023-24. The governing provisions are Section 115BBH and Section 194S.

Key rules:

• Flat 30% tax on the entire gain. The only permitted deduction is the cost of acquisition. No trading costs, no brokerage, no mining expenses.
• No set-off of VDA losses against any other income head — not against capital gains, not against salary, not against business income.
• No carry forward of VDA losses to future years.
• TDS under Section 194S at 1% applies on VDA transfers above Rs. 10,000 per transaction (Rs. 50,000 aggregate threshold for specified persons). This TDS appears in your AIS and Form 26AS and must be reconciled.
• VDA received as a gift or salary-in-kind: the fair market value on the date of receipt is taxable as income from other sources at 30%.

Critical filing note: Do not report VDA gains under Schedule CG (capital gains). VDA goes exclusively under Schedule VDA. Routing crypto profits through capital gains creates a processing mismatch and often results in a demand notice.

AIS Pre-Fill — What the Annual Information Statement Now Covers

The Annual Information Statement (AIS) on the Income Tax Portal (incometax.gov.in) is the single most important pre-filing document for AY 2024-25. For this year, AIS captures:

• Salary and TDS data from Form 16 / Form 26AS
• Interest income from all banks (savings, FD, RD) reported under Statement of Financial Transactions (SFT)
• Dividend income from companies and mutual funds
• Mutual fund transactions — purchases, redemptions, switches at NAV level
• Listed securities transactions — buys and sells from stock exchanges via demat accounts
• Foreign remittances made under the Liberalised Remittance Scheme (LRS), reported by authorised dealer banks
• GST turnover data for business filers
• Rent received where TDS was deducted under Section 194I or Section 194IB
• High-value cash deposits and withdrawals

The Taxpayer Information Summary (TIS) aggregates these items by income head. The ITR pre-fill draws from TIS values.

Step-by-step AIS reconciliation before filing

1. Download AIS and Form 26AS from the portal at least two weeks before filing.
2. Compare AIS interest income against bank passbooks and interest certificates. AIS sometimes duplicates entries when multiple branches report the same account.
3. Cross-check dividend entries against your broker's consolidated statement. Dividend reinvestments by mutual funds are sometimes double-counted.
4. For equity transactions, reconcile the AIS capital gains summary with your broker's P&L report. AIS may record cost differently for bonus shares, rights-issue shares, or shares acquired via demerger.
5. Where discrepancies exist, raise feedback on the AIS portal: mark entries as "incorrect," "duplicate," or "partially correct" with the correct figure. The system generates an updated TIS.
6. File your ITR on your actual numbers, not AIS figures. If you file on correct figures that differ from AIS, document why — a scrutiny query is far easier to answer with primary evidence in hand.

Schedule FA: Foreign Asset Disclosure Gets Stricter

Schedule FA (Foreign Assets) must be filed by every Resident and Ordinarily Resident (ROR) individual who held any foreign asset at any point during calendar year 2023 (1 January 2023 to 31 December 2023 — note: this is the calendar year, not the financial year). Declarations include:

• Foreign bank accounts — even dormant accounts, even accounts with a near-zero balance
• ESOPs (Employee Stock Options) and RSUs (Restricted Stock Units) issued by a foreign parent company, including unvested grants
• Foreign equity and debt investments, including US brokerage accounts
• Foreign immovable property
• Beneficial interest in any foreign trust, company, or partnership
• Signing authority on a foreign account that you do not own

The Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 prescribes:

• Flat 30% tax on the value of undisclosed foreign assets
• Penalty of 90% of the undisclosed amount — effectively three times the tax payable
• Prosecution provisions that can apply regardless of the amount involved

There is no minimum threshold. A USD 200 balance in a forgotten US student account must be declared. An unvested ESOP grant from an employer's US parent must be reported at its fair market value on 31 December 2023. Non-disclosure is consistently the most expensive tax mistake an Indian resident professional makes.

Deadlines, Late Fees, and the Updated ITR-U Window

Late filing fee under Section 234F

• Rs. 5,000 if total income exceeds Rs. 5 lakh
• Rs. 1,000 if total income is Rs. 5 lakh or below

Interest for delayed tax payment

• Section 234A: 1% per month (or part-month) on outstanding tax from the due date to the actual filing date
• Section 234B: 1% per month if advance tax paid is less than 90% of assessed tax
• Section 234C: 1% per month for shortfall in quarterly advance tax instalments (June, September, December, March)

E-verification deadline: After filing, you must e-verify via Aadhaar OTP, net banking, or bank ATM — or physically send a signed ITR-V to CPC Bengaluru — within 30 days of submission. An unverified return is treated as never filed.

Worked Example: Old Regime vs New Regime for a Salaried Employee

Profile: Rahul, 38, salaried, no business income. Total gross salary Rs. 14,00,000.

Old regime tax on Rs. 8,45,000:

• Rs. 0 – Rs. 2.5 lakh: Nil
• Rs. 2.5 – Rs. 5 lakh at 5%: Rs. 12,500
• Rs. 5 – Rs. 8.45 lakh at 20%: Rs. 69,000
• Subtotal: Rs. 81,500
• Add 4% health and education cess: Rs. 3,260
• Total tax: Rs. 84,760

New regime tax on Rs. 13,50,000:

• Rs. 0 – Rs. 3 lakh: Nil
• Rs. 3 – Rs. 6 lakh at 5%: Rs. 15,000
• Rs. 6 – Rs. 9 lakh at 10%: Rs. 30,000
• Rs. 9 – Rs. 12 lakh at 15%: Rs. 45,000
• Rs. 12 – Rs. 13.5 lakh at 20%: Rs. 30,000
• Subtotal: Rs. 1,20,000
• Add 4% cess: Rs. 4,800
• Total tax: Rs. 1,24,800

Verdict: The old regime saves Rahul Rs. 40,040 per year. If he missed notifying his employer and his TDS was deducted under the new regime, he would need to switch at filing and claim that refund — a common scenario that caused refund queues in AY 2024-25 processing at CPC Bengaluru.

Surcharge Rationalisation: What It Means in Practice

For income above Rs. 5 crore, the new tax regime caps the surcharge at 25%, against 37% under the old regime. This reduces the effective highest marginal rate from 42.74% (old regime) to 39% (new regime) — a 3.74 percentage point saving for ultra-high-income taxpayers.

Long-term capital gains under Section 112A (equity LTCG) carry a separate surcharge cap of 15% regardless of total income, under both regimes.

For salaried taxpayers earning below Rs. 50 lakh, surcharge does not apply (it begins at Rs. 50 lakh for the first bracket). The surcharge rationalisation is therefore a meaningful differentiator only for promoters, senior executives, and UHNI investors.

Common Mistakes Taxpayers Made in AY 2024-25

1. Defaulting into the new regime without comparing both options. Salaried employees who did not inform their employer defaulted to new-regime TDS. Those with significant deductions — HRA, home-loan interest, 80C close to Rs. 1.5 lakh — often paid more tax than necessary and scrambled for refunds at filing.

2. Misclassifying debt mutual fund redemptions. Investors who redeemed post-April-2023 debt fund units after holding for 3+ years reported them as LTCG with indexation. This is incorrect. Section 50AA makes these slab-rate income regardless of holding period.

3. Reporting VDA gains under Schedule CG. Schedule VDA is a separate schedule. Misrouting causes processing errors and often triggers a notice under Section 143(1).

4. Missing the 30-day e-verification window. Filing before 31 July 2024 but forgetting to verify meant the return was treated as invalid. The only remedy then becomes ITR-U, which carries an additional 25% to 50% tax on incremental tax payable.

5. Claiming Section 87A rebate against STCG. The ITR portal blocked this for offline filers, but some online filings went through. Demand notices under Section 143(1) followed systematically.

6. Omitting foreign assets from Schedule FA. ESOPs and RSUs from foreign parent companies are frequently undeclared. The Black Money Act penalty — 90% of the value — makes this the highest-cost omission in Indian income tax compliance.

7. Accepting AIS figures without cross-checking. AIS sometimes contains duplicates, stale data, or transactions belonging to a family member with a linked account. Filing without reconciliation leads to either over-reporting income or leaving unexplained mismatches that attract scrutiny.

Key Takeaways

• New regime is the default from FY 2023-24: Under Section 115BAC, filing without a regime declaration means new regime. To access deductions under 80C, 80D, HRA, or Section 24(b) home-loan interest, you must opt into the old regime — both with your employer during the year and explicitly in your ITR.
• Section 87A rebate extends to Rs. 7 lakh under the new regime: Tax liability up to Rs. 25,000 is fully rebated if total income does not exceed Rs. 7 lakh — but the rebate does not offset tax on special-rate incomes such as STCG at 15% or VDA gains at 30%.
• Debt mutual funds lost LTCG and indexation from 1 April 2023: Units purchased on or after that date are taxed at slab rates regardless of how long you hold them. Pre-April-2023 units retain their grandfathered treatment for 36-month holds.
• Schedule VDA is a standalone schedule: 30% flat tax, no loss set-off, no carry-forward. TDS under Section 194S must be reconciled against AIS before filing.
• AIS is comprehensive but not infallible: Cross-check every entry against bank certificates, broker P&L statements, and demat statements. Raise feedback on errors and file on actual figures.
• Schedule FA has no minimum threshold: Any foreign bank account, ESOP grant, RSU vesting, or LRS investment for calendar year 2023 must be disclosed. Non-disclosure under the Black Money Act attracts a 90% penalty on the asset value in addition to 30% tax.
• ITR-U for AY 2024-25 is available until 31 March 2029: Finance Act 2025 extended the window to 48 months — but the additional tax levy (25% to 50% on incremental tax) makes early correction always cheaper than waiting.