Union Budget 2025: Since the full Union Budget 2024 presentation, there has been an increasing worry that the government intends to eliminate the existing tax regime entirely. Although the new regime offers broader tax slabs and lower rates, it provides limited deductions and exemptions.
After the presentation of the Union Budget 2024, Finance Minister Nirmala Sitharaman addressed concerns surrounding the old income tax regime, emphasizing that the government has made no final decision. She emphasized that the main objective of the NDA government is to simplify the tax system. Sitharaman stated that any decision regarding the potential discontinuation of the old tax regime will be made following a comprehensive evaluation.
“The government’s intention is to make the income tax regime simpler. I cannot say whether there will be a sunset on the old income tax regime. A decision will be made after a review,” Sitharaman said.
In India, the income tax structure operates on a slab system with varying tax rates assigned to different income brackets. This progressive taxation system ensures that individuals with higher earnings contribute proportionally more in taxes. These income brackets are periodically updated, usually during each Budget session.
FM Sitharaman introduced three significant changes in the New Tax Regime, keeping the Old Tax regime unchanged.
After coming to power for the third term, Sitharaman made adjustments to the tax slab rates. With the new changes, individuals with income up to Rs 3 lakh will not be taxed, while those earning between Rs 3 lakh and 7 lakh will be taxed at 5%. The tax rates also include 10% for income between Rs 7 lakh and 10 lakh, 15% for income between Rs 10 lakh and 12 lakh, 20% for income between Rs 12 lakh and 15 lakh, and 30% for income above Rs 15 lakh.
Additionally, the standard deduction for salaried employees was raised from Rs 50,000 to Rs 75,000. The limit on an employer's contribution to an employee's National Pension System account, which is eligible for tax deduction under the new tax regime, has been increased from 10% to 14% of the basic salary.
With these revisions, individuals can benefit from a maximum tax savings of Rs 17,500 under the new tax regime.
Old Tax Regime vs New Tax Regime
The Old Tax Regime refers to the system of income tax calculation and slabs that existed before the introduction of the New Tax Regime. In her Budget speech for 2023, FM Nirmala Sitharaman announced that the new tax system will now be automatically applied to taxpayers who do not indicate a preference.
Under the Old Tax System, tax rates are higher, but various exemptions and deductions are available.
Tax brackets ranged from 2.5% to 30% based on income. However, in the New Tax System, tax rates are lower, ranging from 0% to 30%, but there are fewer deductions and exemptions available.
The Old Tax Regime incentivises saving by providing deductions and exemptions, such as those outlined in Section 80TTB, specifically tailored to benefit senior citizens.
On the other hand, the new tax system streamlines the filing process by introducing lower tax rates, especially advantageous for individuals in lower income brackets, despite reducing the number of available deductions and exemptions.
Tax slabs for FY25
Under the revised New Tax Regime effective from April 1, 2024, the income tax slabs are as follows: Income up to Rs 3,00,000: Nil Rs 3,00,001 - Rs 7,00,000: 5 per cent of the amount exceeding Rs 3,00,000 Rs 7,00,001 - Rs 10,00,000: Rs 20,000 + 10 per cent of the amount exceeding Rs 7,00,000 Rs 10,00,001 - Rs 12,00,000: Rs 50,000 + 15 per cent of the amount exceeding Rs 10,00,000 Rs 12,00,001 - Rs 15,00,000: Rs 80,000 + 20 per cent of the amount exceeding Rs 12,00,000 Above Rs 15,00,000: Rs 1,40,000 + 30 per cent of the amount exceeding Rs 15,00,000
Under the Old Tax Regime, the income tax slabs are as follows:
Up to Rs 2,50,000 Nil Rs 2,50,001 to Rs 5,00,000 5% Rs 5,00,001 to Rs 10,00,000 20% Above Rs 10,00,000 30%
For Senior Citizens (Only Resident Individuals aged 60 or above)
Up to Rs 3,00,000: Nil Rs 3,00,001 to Rs 5,00,000: 5% Rs 5,00,001 to Rs 10,00,000: 20% Above Rs 10,00,000: 30%
For Super Senior Citizens (Only Resident Individuals aged 80 or above) Up to Rs 5,00,000 Nil Rs 5,00,001 to Rs 10,00,000 20% Above Rs 10,00,000 30%