Income Tax Modifications from April 2023

From April 2023, India's new tax regime under section 115BAC became the default for individuals, HUFs, AOPs, BOIs and artificial juridical persons, with revised slabs starting at ₹3 lakh basic exemption and rising to 30% above ₹15 lakh. The section 87A rebate was enhanced so that total income up to ₹7 lakh attracts nil tax with marginal relief above. A standard deduction of ₹50,000 (now ₹75,000) was extended to the new regime, and the surcharge for income above ₹5 crore was capped at 25%. These changes continue to shape tax planning through FY 2026-27.

Mayank Wadhera

Published: 10 Apr 2023

Updated: 16 May 2026

3 min read

The April 2023 income tax changes were among the most consequential of the past decade — the new tax regime under section 115BAC became the default, the section 87A rebate threshold rose to ₹7 lakh, standard deduction was extended to the new regime, and the surcharge structure was rebalanced. These provisions continue largely unchanged into FY 2026-27, with the Union Budget 2026 building on the same architecture. Understanding the April 2023 inflection helps anyone navigating updated returns or comparing year-over-year liabilities.

New Tax Regime Becomes the Default

From AY 2024-25 onwards, section 115BAC was amended so that the new regime applies by default for individuals, HUFs, AOPs, BOIs and artificial juridical persons unless they specifically opt out. Salaried taxpayers can switch every year through the ITR. Business income earners must file Form 10-IEA before the due date and can switch back only once in their lifetime. This is now the established norm.

Revised Slabs Under the New Regime

Up to ₹3,00,000 — nil
₹3,00,001 to ₹6,00,000 — 5%
₹6,00,001 to ₹9,00,000 — 10%
₹9,00,001 to ₹12,00,000 — 15%
₹12,00,001 to ₹15,00,000 — 20%
Above ₹15,00,000 — 30%

Note: Union Budget 2026 has further refined these slabs and the rebate threshold. Verify current-year numbers with the latest Finance Act before computing FY 2026-27 liability.

Section 87A Rebate Up to ₹7 Lakh

Under the new regime, the rebate under section 87A was enhanced so that a resident individual with total income up to ₹7,00,000 pays no income tax. Marginal relief was also introduced — for income marginally above ₹7 lakh, the additional tax is limited to the additional income, preventing a tax cliff. The old regime rebate remained at ₹12,500 for incomes up to ₹5 lakh.

Standard Deduction Extension

The ₹50,000 standard deduction (since enhanced to ₹75,000 under the new regime by Finance Act 2024 and continuing into FY 2026-27) was extended to salaried taxpayers and pensioners opting for the new regime. The family pension deduction of ₹15,000 (now ₹25,000) was also extended. These changes made the new regime materially more attractive for salaried filers.

Surcharge Cap

Highest surcharge slab of 37% under the old regime was reduced to 25% under the new regime for income above ₹5 crore.
Maximum marginal rate under the new regime came down to approximately 39%, compared to 42.7% under the old regime.
Surcharge on long-term capital gains capped at 15% irrespective of income, continuing from Finance Act 2022.

Other Notable April 2023 Changes

Section 194BA introduced 30% TDS on net winnings from online gaming. Section 115BBJ taxed online gaming winnings at flat 30%. Section 9(1)(viii) was amended to bring offshore gift transactions into Indian tax net. Leave encashment exemption for non-government salaried employees was raised to ₹25 lakh under section 10(10AA).

Compliance Implications for FY 2026-27

Updated returns for AY 2024-25 must apply these provisions correctly. Reassessment notices and rectifications still surface this year. For current-year filing, ensure you have actively chosen the right regime, computed the rebate properly with marginal relief, and applied the standard deduction at the FY 2026-27 enhanced level. Reconcile with AIS and Form 26AS before filing.

Conclusion

April 2023 reset the structural architecture of Indian personal income tax — the new regime by default, the ₹7 lakh rebate, and rebalanced surcharges. These rules continue to shape tax planning through FY 2026-27. Stay current with each Finance Act tweak and run a regime-comparison every March.

Frequently Asked Questions

What changed in income tax from April 2023?

The new tax regime under section 115BAC became the default, the basic exemption rose to ₹3 lakh, the section 87A rebate was enhanced to make income up to ₹7 lakh tax-free, standard deduction of ₹50,000 was extended to the new regime, and the highest surcharge was capped at 25%. Maximum marginal rate dropped to around 39%.

Is the old tax regime still available?

Yes. The old tax regime remains available as an opt-out option. Salaried taxpayers can switch regimes every year by indicating the choice in their ITR. Business and professional income earners must file Form 10-IEA before the due date to opt out of the new regime, and can switch back only once in their lifetime.

What is marginal relief under section 87A?

Marginal relief ensures that for total income marginally above ₹7 lakh under the new regime, the additional tax does not exceed the additional income above ₹7 lakh. Without marginal relief, a small increase in income could trigger a disproportionately large tax liability. The CBDT-notified mechanism prevents this tax cliff.

Did surcharge reduce in the new regime?

Yes. From April 2023, the highest surcharge slab of 37% applicable to income above ₹5 crore was reduced to 25% under the new tax regime. This brought the maximum marginal rate down from 42.7% (old regime) to approximately 39% (new regime), making the new regime particularly attractive for high-income taxpayers with limited deductions.