In her Budget speech in 2024, FM Sitharaman called to make the new tax regime more attractive to salaried employees and pensioners. 
Special 
In her Budget speech in 2024, FM Sitharaman called to make the new tax regime more attractive to salaried employees and pensioners. With the Union Budget 2025 approaching within a month, there are increasing speculations regarding potential incentives that the government might introduce to encourage taxpayers to transition to the New Tax Regime.
After the policies announced in the July budget, the upcoming full budget of the NDA 3.0 government is anticipated to contain further measures aimed at promoting the adoption of the new tax framework, which restricts exemptions and has very few deductions.
Discussions among key stakeholders, such as the Prime Minister's Office and prominent economists, have emphasized the importance of fiscal measures to drive spending. Ranging from minimizing income tax liabilities to providing enhanced financial assistance for daily expenditures, the middle class has articulated a list of desired outcomes that mirror their ambitions and financial constraints.
One of the key things expected in terms of tax relief is modification of New Tax Regime to suit more and more taxpayers. According to data from the finance ministry, approximately 72% of the total 7.28 crore taxpayers chose the new tax regime when filing their ITRs for the assessment year 2024-25 before the July 31, 2024 deadline. Conversely, only 28% of taxpayers opted for the old tax regime.
It is anticipated that the proportion of returns filed under the old tax regime will decrease further as the government enhances the benefits of the new tax regime in each budget update.
Let's see how FM Nirmala Sitharaman first introduced it and modified it to make it a favourable regime for many.
Introduction in 2020
FM Sitharaman first presented the New Tax Regime in her Budget speech on February 1, 2020. This alternative option for personal income tax was designed to be "simplified" with notably lower tax rates.
However, opting for this simplified regime meant that taxpayers had to give up certain deductions and exemptions available under the previous tax system. In her announcement, FM Sitharaman emphasized that the Income Tax Act was overly complex, filled with numerous exemptions and deductions, making compliance a cumbersome task for taxpayers. She noted that seeking professional help was often necessary to navigate the current income-tax laws.
The Finance Minister stated that the implementation of the new tax system will lead to significant cost savings for taxpayers. For instance, an individual with an annual income of Rs 15 lakh, who does not utilize any deductions, will now pay only Rs 1,95,000 as opposed to Rs 2,73,000 under the previous regime.
Nevertheless, she emphasized that participation in the new tax structure is not obligatory. "Taxpayers have the option to choose whether to adopt the new tax system. Those currently benefiting from more deductions and exemptions under the Income Tax Act can opt to continue utilising them and remain under the old regime," she explained.
The new tax regime unveiled in Budget 2020 featured six taxable slabs, without any deductions or exemptions.
New tax regime slabs in Budget 2020
Taxable income slab (Rs) Tax rates
0-2.5 lakh 0
2.5-5 lakh 5%
5-7.5 lakh 10%
7.5-10 lakh 15%
10-12.5 lakh 20%
12.5-15 lakh 25%
Above 15 lakh 30%
Union Budget 2021
No changes were made in income tax rates for individuals and corporations. Tax exemption on the interest income on the employees’ contributions to provident funds was limited up to Rs 2.5 lakh.
Union Budget 2022
In Union Budget 2022, the New Tax Regime offered reduced income tax slab rates and an increased number of income tax slabs as compared to the Old Tax Regime. But the new tax system provided limited exemptions and deductions.
Union Budget 2023
The Budget speeches of 2021 and 2022 did not introduce any changes to the tax regime. However, during the Budget speech of 2023, the Finance Minister outlined a clear direction for the future of the new tax system, stating that it would be the default option moving forward.
Starting from the assessment year 2024-25 (financial year 2023-24), the new tax regime became the default choice on the ITR e-filing portal. Taxpayers still have the option to choose the old tax regime, but they must declare their preference before filing their returns.
In an effort to attract more taxpayers, the Finance Minister made the new tax regime more attractive with the following adjustments:
No tax for individuals with income up to Rs 7 lakh
Reduction of taxable slabs to 5
Increase of basic tax exemption limit to Rs 3 lakh from Rs 2.5 lakh
Introduction of standard deduction of Rs 50,000 for salaried individuals and pensioners, and Rs 15,000 for family pension
Decrease in maximum tax rate to 39% from 42.74%
The FM revised the tax slabs under the New Tax Regime:
New tax regime slabs and rates as per Budget 2023
Taxable income slab (Rs) Tax rate
0-3 lakh Nil
3-6 lakh 5%
6-9 lakh 10%
9-12 lakh 15%
12-15 lakh 20%
Above 15 lakh 30%
Union Budget 2024
In her Budget speech in 2024, FM Sitharaman called to make the new tax regime more attractive to salaried employees and pensioners. She made changes to the tax slabs and rates, as well as increased the standard deduction limit for this group to Rs 75,000 from Rs 50,000.
Additionally, private-sector employees under the new tax regime were now eligible to claim a deduction of up to 14% of their basic salary for investments made in the National Pension System (NPS). The Budget also raised the standard deduction limit for family pension to Rs 25,000 from Rs 15,000.
New tax regime slabs as per Budget 2024
Taxable income slab (Rs) Tax rate
0-3 lakh Nil
3-7 lakh 5%
7- 10 lakh 10%
10-12 lakh 15%
12-15 lakh 20%
Above 15 lakh 30%
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