Union Budget 2024 Reveals New Income Tax Slabs in Revised Tax Regime

In the latest Budget 2024, the Finance Minister has introduced revised income tax slabs and rates under the new tax regime. These changes are set to impact taxpayers and their financial planning for the coming fiscal year.

Key Announcements

The Finance Minister has adjusted the income tax slabs and rates as part of the new tax regime. These updates aim to provide clearer tax benefits and streamline the tax structure.

In the Budget for FY 2024-25, Finance Minister Nirmala Sitharaman has introduced revisions to the income tax slabs under the new tax regime. The updated income tax slabs now include a 0% tax rate on income up to Rs 3 lakh.

Revised Tax Rates Under New Tax Regime

Rs 0-3 lakh: Nil tax

Rs 3-7 lakh: 5%

Rs 7-10 lakh: 10%

Rs 10-12 lakh: 15%

Rs 12-15 lakh: 20%

Above Rs 15 lakh: 30%

This change is expected to result in savings of up to Rs 17,500 for taxpayers who choose the new tax regime. Additionally, the standard deduction limit has been increased to Rs 75,000 from Rs 50,000 exclusively within the new tax regime. For family pensioners, the standard deduction limit has been raised to Rs 25,000 from Rs 15,000.

Current Features of the New Tax Regime

The new tax regime is now the default tax system. This means an individual's tax liability will be calculated based on the new tax regime unless they specifically opt for the old tax regime. To pay tax under the old tax regime, individuals must actively choose it. While the old tax regime offers multiple deductions and exemptions, the new tax regime provides very few.

Overview of the New Tax Regime

Income Tax Slabs

The new tax regime includes five income tax slabs. The highest tax rate of 30% applies to income exceeding Rs 15 lakh.

Basic Exemption Limit

The basic exemption limit is set at Rs 3 lakh. No tax is payable on income up to Rs 3 lakh.

Tax Rebate

No tax is payable for incomes not exceeding Rs 7 lakh. This is due to a tax rebate of up to Rs 25,000 under Section 87A of the Income-tax Act, 1961.

Standard Deduction

A standard deduction of Rs 50,000 is available to salaried individuals and pensioners. Family pensioners are eligible to claim a standard deduction of Rs 15,000.

Surcharge

A surcharge of 25% applies to incomes above Rs 5 crore.

Marginal Tax Relief

Marginal tax relief is available for small taxpayers whose incomes slightly exceed Rs 7 lakh.

A cess of 4% will be levied on the income tax amount, while surcharges will apply to incomes above Rs 50 lakh.

Introduction of the New Tax Regime

The new tax regime was introduced in the financial year 2020-21, becoming effective from April 1, 2020. Initially, this regime was optional, and taxpayers had to specifically choose to opt into it.

Transition to Default Status

As of April 1, 2023, the new tax regime has become the default option. Taxpayers who wish to claim exemptions and deductions under the old tax regime now need to explicitly opt for it.

Deciding Between the New and Old Tax Regime

Annual Decision for Salaried Individuals

A salaried individual who does not have any business income is required to choose between the new and old tax regimes every financial year. This choice must be made at the time of filing the income tax return (ITR). For the current financial year, while filing the ITR for FY 2023-24 (AY 2024-25), an individual must select "No for opting under Section 115BAC (new tax regime)" to pay income tax under the old tax regime.

Restrictions for Taxpayers with Business Income

Taxpayers with business income face a different scenario. If they opt for the new tax regime, they cannot switch back to the old tax regime in subsequent years. Thus, it's essential for these taxpayers to make a careful decision when selecting their tax regime.

Conclusion

The Budget 2024's revised income tax slabs under the new tax regime offer potential savings and a streamlined tax structure. However, taxpayers need to carefully assess their financial situation and decide which regime best suits their needs. With the new tax regime now being the default option, individuals and business owners must weigh the benefits and limitations of each system to make an informed decision that maximizes their tax efficiency.

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