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Budget 2024: Rs 18 lakh could be the new sweet spot for 30% income tax slab, says BankBazaar

Budget 2024: Rs 18 lakh could be the new sweet spot for 30% income tax slab, says BankBazaar

The tax structure, at present, is as follows: Income from Rs 2.5 lakh to Rs 5 lakh is taxed at 5%, income from Rs 5 lakh to Rs 10 lakh at 20%, and any income exceeding Rs 10 lakh is taxed at 30%.

Navneet Dubey 
Navneet Dubey 
  • Updated Jul 17, 2024 9:51 AM IST
Budget 2024: Rs 18 lakh could be the new sweet spot for 30% income tax slab, says BankBazaarDespite the absence of inflation adjustments for over a decade, many taxpayers find their liabilities lower in the old regime due to numerous deductions.

BankBazaar has proposed a new income tax slab that would bring a significant change. Under this proposal, the 30% slab in the old regime would move up to ₹18 lakh if it was simply adjusted for inflation during this period.

This is a substantial increase from the current tax (old) regime, where the tax slab for higher income is Rs 10 lakh since 2013.

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The tax structure, at present, is as follows: Income from Rs 2.5 lakh to Rs 5 lakh is taxed at 5%, income from Rs 5 lakh to Rs 10 lakh at 20%, and any income exceeding Rs 10 lakh is taxed at 30%. BankBazaar's proposal would provide substantial tax relief to many middle-class taxpayers.

The BankBazaar Primer for Budget 24 highlights that compared to the 2012-13 benchmarks, the 20% and 30% slabs must be updated for the old regime. Based on the Cost Inflation Index, the values for 2012-13 and 2024-25 are 200 and 363, respectively, indicating an 81.5% rise in the index. Recent years of persistent inflation have significantly increased the index. Therefore, it’s imperative that the old slab rates be suitably adjusted without further delay.

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The primer covers data on income erosion, ‘real’ taxation rates in the absence of inflation adjustment, excess taxes paid at various income levels, and the enhanced slabs for the old regime.

Income Tax Slab Proposal by BankBazaar

The old regime provided taxpayers with numerous deductions, including rent, loan payments, insurance premiums, and tax-saving investments such as provident funds, tuition fees, and medical expenses. These deductions are sizeable and reduce the tax liabilities for many, who prefer them to the new regime, which offers fewer deductions. In the absence of inflation adjustments to the old slab rates, which have been frozen since 2013, taxpayers continue to pay inflated tax rates while living costs soar.

Enhancement Required in Particular Sections

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  • 80C limits: Currently at Rs 1.5 lakh, set in 2014, must be enhanced to at least Rs 2 lakh.
  • 80D deductions: Considering the rising costs of insurance premiums post-COVID, must be enhanced to Rs 50,000 for general taxpayers and Rs 100,000 for senior citizens.
  • Home loan interest and principal payments: Should be housed separately in their own section, going up to Rs 5 lakh.
  • Rebates under 87A: Should be extended to incomes up to Rs 6.3 lakh, compared to the last update done in 2019.
     

The Issue with Frozen Tax Slabs

The new tax regime charges no income tax on a taxable income of Rs 7 lakh or less. However, taxpayers above that income level prefer the old regime, where the tax slabs have been frozen since 2013-14. Despite the absence of inflation adjustments for over a decade, many taxpayers find their liabilities lower in the old regime due to numerous deductions. However, in an inflationary period, taxpayers are stretched and need relief through higher tax slabs and greater deductions.

Excess Taxes Being Paid

Assuming that income tax brackets are not inflation-adjusted and using 2012-13 inflation numbers as the base value, it is evident that excess taxes are being paid. In the old regime, income above Rs 5 lakh attracts excess taxes. In the new regime, excess taxes apply to incomes above Rs 15 lakh. For instance, for an income of Rs 10 lakh, excess taxes paid in the old regime amount to Rs 43,226, or Rs 3,602 per month. At an income of Rs 20 lakh, excess taxes paid are Rs 1.84 lakh in the old regime and Rs 67,978 in the new regime.
 

Published on: Jul 16, 2024 5:14 PM IST
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