Tax calculations: The Union Budget 2024 has introduced a new set of tax slabs for the new tax regime to provide more tax relief compared to the previous tax system. Individuals may wonder how to determine which tax regime is more advantageous for them. The decision will depend on the specific deductions that each taxpayer can claim to ensure that their tax liability is lower under the old regime than the new one.
One should note that there have been no modifications to the income tax rules, slabs, and rates in the Old Tax Regime. However, some changes were made to the New Tax Regime.
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The proposed changes under the new tax regime include:
> Adjustments to the income tax slabs in the New Tax Regime > An increase in the standard deduction limit to Rs 75,000 from Rs 50,000, resulting in a Rs 25,000 raise > An increase in the standard deduction available to family pensioners to Rs 25,000 from Rs 15,000, resulting in a Rs 10,000 raise > An increase in the deduction on employer's NPS contribution to employee's account to 14% from the previous 10% limit.
The new income tax slabs announced in the Budget 2024 are as follows:
Up to Rs 3 lakh - 0% Rs 3 lakh to Rs 7 lakh - 5% Rs 7 lakh to Rs 10 lakh - 10% Rs 10 to Rs 12 lakh - 15% Rs 12 to Rs 15 lakh - 20% Above Rs 15 lakh - 30%
Overall, the revised tax slabs under the New Tax Regime aim to reduce the tax burden for individuals with taxable incomes up to Rs 10 lakh. Under the proposed new tax regime, income between Rs 6-7 lakh will be taxed at 5%, and income between Rs 9-10 lakh will be taxed at 10%, resulting in a tax savings of Rs 5,000.
The standard deduction has also been raised to Rs 75,000, meaning that income up to Rs 7.75 lakh will not be taxed. This change is expected to benefit salaried taxpayers by Rs 7,500.
In this scenario, if the taxable income is Rs 7,75,000 and only a standard deduction is applicable, the tax liability under the old tax regime would be approximately Rs 59,800. However, under the new tax regime, there will be no tax payable in this situation.
A salaried employee with a total income of Rs 16 lakh will have a taxable salary income of Rs 15.5 lakh for FY 2023-24 and Rs 15.25 lakh for FY 2024-25 under the proposed new tax regime, after standard deduction.
The tax payable for FY 2023-24 will be Rs 1.65 lakh under the current new tax regime and Rs 1,47,500 under the proposed new tax regime for FY 2024-25. Including e-cess, the total tax amount will be Rs 1,71,600 and Rs 1,53,400 under the current new tax regime and proposed new tax regime, respectively.
In the proposed new tax regime introduced in Budget 2024, only the standard deduction of Rs 75,000 is considered for tax calculation. In contrast, the old tax regime takes into account a standard deduction of Rs 50,000 as per income tax laws.
Additional deductions beyond the standard deduction of Rs 50,000 may include HRA tax exemption, LTA tax exemption, Section 80C, NPS investment deduction of Rs 50,000, Section 80D deduction, and other eligible deductions that the taxpayer may claim.
The following are the minimum deductions, also known as break-even levels, that need to be claimed in the previous tax regime at various income levels to yield the same amount of tax in both tax regimes.
| Gross income level (In Rs) | Min deductions that must be claimed in old tax regime | Tax payable in Old Regime | Tax payable in proposed New Tax Regime |
| At 7.75 lakhs | 3,25,000 | - | - |
| At 10 lakhs | 3,50,000 | 44,200 | 44,200 |
| At 12.5 lakhs | 4,31,250 | 79,300 | 79,300 |
| At 15.75 lakhs | 4,83,333 | 1,45,600 | 1,45,600 |
| At 20 lakhs | 4,83,333 | 2,78,200 | 2,78,200 |
Source: EY India