Income Tax 2024: Under the Union Budget for the fiscal year 2024-25, the Central government has once again highlighted its emphasis on the New Tax Regime by revising the tax slabs to offer increased tax relief compared to the Old Tax Regime. This raises the crucial query: Is it advisable for taxpayers currently inclined towards the old tax regime to contemplate transitioning to the new tax regime?
The determination of whether such a switch is beneficial hinges on the individual deductions that each taxpayer is eligible to claim, ensuring that the tax liability under the old regime remains lower than that under the new regime. It is important to note that the specific deductions required vary depending on the income bracket of the taxpayer.
How much tax do I have to pay? Calculate now
In the Budget this year, FM Nirmala Sitharaman tweaked the tax slabs. The current income slab, ranging from Rs 3-6 lakh, which is subject to taxation, will be raised to a higher bracket of Rs 3-7 lakh.
Despite this adjustment, the tax rate of 5% will remain unaltered. Individuals earning less than Rs 3 lakh will still be exempt from paying taxes, as well as those falling within the Rs 12-15 lakh bracket and those earning over Rs 15 lakh, for whom no changes have been implemented.
These changes are expected to provide a marginal relief of Rs 17,500 for taxpayers under the new regime.
Additionally, the standard deduction for salaried employees has increased from Rs 50,000 to Rs 75,000. Adjustments have also been made to deductions related to family pensions and new pension scheme contributions.
These are the tweaked tax slabs under the New Tax Regime
Income Tax % 0 - 3 lakh Nil 3 - 7 lakh 5% 7 - 10 lakh 10% 10-12 lakh 15% 12-15 lakh 20% Above 15 lakh 30%
How to choose the suitable tax regime
Dipesh Jain, Partner at Economic Laws Practice, said the revised tax slabs under the New Tax Regime are designed to be advantageous for individuals with yearly earnings of up to Rs 7 lakh. Previously subjected to a 10% tax rate, these individuals will now be taxed at a reduced rate of 5%. Furthermore, individuals earning up to Rs 10 lakh annually are set to gain from the latest modifications made to the tax slabs under the New Tax Regime.
But for those who want to avail of the deductions and exemptions, they should opt for the Old Tax Regime. For example, if a salaried employee receives an annual income of Rs 11 lakh and qualifies for deductions exceeding Rs 3.93 lakh, they may benefit from the Old Tax Regime due to reduced outgo. Although it may seem improbable for a single individual earning Rs 11 lakh to avail such significant deductions, a household with dual incomes could potentially claim these advantages.
"On an average, if you can claim 25-30% of your income as deductions, the Old Regime will continue to be less expensive for you. If your taxable income is between Rs 8 lakh and Rs 18 lakh, you will need to claim anywhere between 26% to 32% of your income as deductions to advantage of the old scheme. For instance, if your income is Rs 10 lakh, you will need a deduction of more than Rs 3.5 lakh for the Old Regime to be profitable. If your income is Rs 15 lakh, this number goes up to Rs 4.6 lakh. For taxable income of over Rs 16 lakh or more, the minimum deductions required stabilise at Rs 4.84 lakh. Opt for the Old Regime if you have sufficient deductions under 80C, 80CCD, 80D, 80G, Section 24, and others. If not, go with the new regime," said Adhil Shetty, CEO, BankBazaar.com
"An individual will have to choose between the old and new regime depending upon the quantum of deduction/exemption available to him under the old regime as compared to new regime," says Mitesh Jain, Partner, Economic Laws Practice.
Tax Slabs under the Old Tax Regime
Income Tax % Up to Rs 2.5 lakh: Nil Rs 2,50,001 to Rs 5 lakh: 5% Rs 5,00,001 to Rs 10 lakh: 20% Above Rs 10 lakh: 30%
In terms of tax implications, the Old taxation system would be deemed most advantageous for individuals earning approximately Rs 60 lakh per annum, provided they can avail deductions exceeding Rs 3,93,750. Conversely, individuals earning up to approximately Rs 7.75 lakh would significantly benefit from opting for the new and streamlined tax regime.
When discussing individuals with a substantially higher income, specifically at Rs 6 crore, the new and streamlined tax regime presents as a more advantageous option. The tax liability on this income will decrease given the lower surcharge rate, standing at 39%, in comparison to the previous regime.
To sum up, individuals with significant deductions and relatively high incomes are likely to prefer the old tax structure, whereas those earning between Rs 7 lakh and over Rs 5-6 crore are anticipated to favour the New tax regime.