NEW DELHI: The Union Budget 2024 has introduced enhanced tax relief in the new tax regime by adjusting the income tax slabs, making it more appealing compared to the old tax regime. As a result, taxpayers currently using the old tax regime may want to consider switching to the new tax regime for the 2024-25 financial year.
According to the Budget 2024 proposals, the new tax regime has seen an expansion of income slabs, leading to a reduction in tax rates. Specifically, the tax rate for the income slab between Rs 6,00,000 and Rs 7,00,000 has been decreased from 10 per cent to 5 per cent. Additionally, for the income range of Rs 9,00,000 to Rs 10,00,000, the tax rate has been lowered from 15 per cent to 10 per cent.
These adjustments result in a total tax saving of Rs 10,000 for individuals earning above Rs 10,00,000 under the new tax regime.
Moreover, the standard deduction has increased from Rs 50,000 to Rs 75,000, contributing to potential overall tax savings of up to Rs 17,500 (before accounting for surcharge and cess) under the new tax regime.
The decision for each taxpayer to switch from the old tax regime to the new one hinges on the deductions they need to claim for their tax liability under the old regime to be lower than that under the new regime. This required level of deductions fluctuates based on income levels.
It’s important to recognise that the old tax regime allows for a variety of deductions against different allowances included in salaries, such as House Rent Allowance (HRA) and Leave Travel Allowance (LTA), as well as specific investments and expenses like the Public Provident Fund (PPF), National Pension Scheme (NPS), housing loan repayments, and tuition fees.
Conversely, the new tax regime offers advantages such as a standard deduction and a full rebate for individuals with an annual income of up to Rs 7 lakh. Therefore, individuals earning more than Rs 7 lakh must carefully evaluate their options between the new and old tax regimes, particularly since the old tax regime provides deductions under Chapter VI-A.
“With the changes in the new tax regime, for a salaried taxpayer, who is not a senior citizen (i.e. 60 years and above), with a regular income of R15 lakh and above, the break-even point to choose between the old tax regime and new tax regime has increased from Rs 3,75,000 to Rs 4,33,333. This means that a person who is having exemptions and deductions under the old tax regime and are not available under the new tax regime below this break-even point, will benefit by opting for the new tax regime,” said Poorva Prakash, Partner, Deloitte India.
“In addition, the limit for employer’s contribution towards NPS has been increased from 10 per cent to 14 per cent under the NTR. This would allow the salaried taxpayers to avail additional tax benefit for employer’s contribution to NPS, subject to overall non-taxable threshold of Rs 7.5 lakh. These are welcome moves as eventually it will help in providing increased disposable income in the hands of the salaried taxpayers as well as easing the overall tax admin burden for both employers and the employees,” Prakash added.
Akhil Chandna, Partner, Grant Thornton Bharat, stated, “With an aim to boost the confidence of middle class taxpayers, several announcements have been made especially for the taxpayers opting for the New Tax Regime - From reducing the tax slab rates for individuals resulting in saving of up to Rs 10,400 on taxable income above Rs 15 lakh, increasing the standard deduction on salary from Rs 50,000 to Rs 75,000 and as well as increasing the threshold for deduction on employer contribution to New Pension Scheme from 10 per cent to 14 per cent of salary.”
According to Grant Thornton Bharat, if one opts for the old tax regime and avails all the deductions and exemptions, then the tax outgo will be less. For example, if the gross taxable income is Rs 7,75,000, then the tax liability will be zero, for Rs 15,00,000 income, the tax liability will come in at Rs 1,17,000 and at Rs 30,00,000 , the tax liability will stand at Rs 4,91,400.
Whereas, in the proposed new regime, the tax liability will stand at R0, Rs 1,30,000 and Rs 5,90,200 for the taxable
income at Rs 7,75,000, Rs 15 lakh and Rs 30 lakh a year, respectively. If only 80 C exemption or basic standard deduction is available in the old tax regime, then the new tax regime will help in more tax savings.