 "Union Budget 2024: Should you pick new tax regime? How can you save Rs 17,500 in income tax every year?")
Income tax. That’s probably one of the most searched terms on Budget Day. Finance Minister Nirmala Sitharaman’s Union Budget 2024 introduced some changes which will affect personal taxes .
Keeping in mind the salaried class, the FM announced an increase in the standard deduction to Rs 75,000 from Rs 50,000 under the New Tax regime. The tax slabs under this simplified system were also tweaked marginally.
So does that mean the new regime is more beneficial? Is that what you should opt for? We explain.
What is the old and new tax regime?
In India, tax operates under a structured system of tax slabs. The incomes are divided into ranges and each one attracts tax rates. This is to ensure that those with higher incomes pay more taxes proportionately.
There are two systems to pay taxes – the old regime and the new one. The new tax regime was introduced in the Budget 2020. It offers reduced tax rates and compliances. As exemptions and deductions are not available, it makes tax filing simpler.
The old tax regime overs more than 70 exemptions and deductions, including HRA (house rent allowance) and LTA (leave travel allowance). The most popular deduction is Under Section 80C, which allows a reduction of taxable income up to Rs 1.5 lakh.
What changes did Union Budget 2024 introduce to the new tax regime?
The standard deduction under the new tax regime was increased to Rs 75,000 from the earlier Rs 50,000. The tax slab has also been tweaked a little. These decisions will provide a tax benefit of Rs 17,500 annually to individual taxpayers.
Impact Shorts
More ShortsThe lowest slab in the new tax regime increased to Rs 3 lakh from Rs 2.5 lakh. The tax structure is proposed to be revised as follows:
No tax for those earning up to Rs 3 lakh
5 per cent tax for slab of Rs 3-7 Lakh
10 per cent tax for slab of Rs 7-10 Lakh
15 per cent tax for slab of Rs 10-12 Lakh
20 per cent tax for slab of Rs 12-15 Lakh
30 per cent above Rs 15 lakh
The new tax slabs under the new regime will be effective from April 1 2024 (Assessment Year 2025-26).
How will taxpayers save up to Rs 17,500 annually under the new regime?
Taxpayers who fall under the highest bracket – with a taxable income of Rs 15 lakh or more – will save Rs 7,500 because of the enhancement in the standard deduction rate. Apart from this, the rate rationalisation will lead to savings of Rs 10,000. This taxes the total savings to Rs 17,500 in a year, according to a report in The Indian Express.
“The highest tax slab of 30 per cent continues to be status quo i.e. more than Rs 15 lakh. Accordingly, there would be a marginal relief of Rs 17,500 for individual taxpayers opting for the new regime. This would further enhance the attractiveness of the new tax regime as compared to the old tax regime, where there are no relaxations proposed,” Dipesh Jain, partner at Economic Laws Practice told News18.
Those in the Rs 12 to Rs 15 lakh tax bracket will save Rs 10,000 because of the effect of slab rate reduction. Their savings will be less than those who fall in the top tax category.
The FM has announced changes for those who earlier fell in the Rs 3 and Rs 6 lakh bracket. There has been a change in the slab – it has increased to Rs 7 lakh.
In Slab-II, the tax is Rs 15,000 in the old slab (more than Rs 3 lakh to 6 lakh) and Rs 20,000 in the new slab (more than Rs 3 lakh to Rs 7 lakh). Hence, the taxpayer pays Rs 5,000 more in Slab-II under the new rates, Nehal Mota, co-founder of Finnovate, a financial and wealth management company, told Firstpost.
In FY 2023-2024, the savings on account of tax slab changes for this category was Rs 15,000. In FY 2024-2025, those in the Rs 3 to Rs 7 lakh bracket will save up to Rs 20,000.
The slab for the 10 per cent tax rate has been changed from Rs 6 to 9 lakh to Rs 7 to 10 lakh. Their savings will remain unchanged at Rs 30,000 annually.
The tax slab for the 15 per cent rate has been changed from Rs 9 to Rs 12 lakh to Rs 10 to Rs 12 lakh. In this slab the tax is Rs 45,000 in the old slab and Rs 30,000 in the new slab. Hence the taxpayer pays Rs 15,000 less in the revised rates. So, the overall saving is Rs 10,000 in the new tax rates, Mota told Firstpost.
A full tax rebate is available under the new regime for those who have an annual income up to Rs 7 lakh.
“Clearly, the new tax rates in Budget 2025 will offer a booster to the salaried class in terms of tax savings,” Mota told Firstpost.
“Budget 2024 brought good news for salaried taxpayers as with the increase in standard deduction to Rs 75000 and reduction in slabs of the new tax regime, they can effectively save tax of Rs 17500,” Chartered Accountant Pratibha Goyal, partner, PD Gupta & Company, a Delhi-based firm was quoted as saying by LiveMint.
What about the old tax regime?
The old tax regime remains unchanged in the Union Budget 2024-25.
The tax structure is as follows:
No tax for those earning Rs 2.5 lakh
5 per cent tax for more than Rs 2.5 lakh up to Rs 3 lakh
5 per cent tax for more than Rs 3 lakh up to Rs 5 lakh
20 per cent tax for more than Rs 5 lakh to Rs 6 lakh
20 per cent tax for more than Rs 6 lakh to Rs 9 lakh
20 per cent tax for more than Rs 9 lakh to Rs 10 lakh
30 per cent tax for more Rs 10 lakh to Rs 12 lakh
30 per cent tax for more than Rs 12 lakh to Rs 15 lakh
30 per cent to those earning more than Rs 15 lakh
Should you opt for the new regime?
The additional savings offered under the new tax regime are an effort to make it more attractive to the salaried class. The government has over the past few years trying to get more and more people to switch to the exemption-free new regime.
But not everyone is likely to benefit. Salaried taxpayers under the highest tax bracket will benefit the most if they opt for the new regime now.
However, if you have significant deductions under the old regime, you might still prefer to stick with it.
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With inputs from agencies_
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