The Finance Act 2024 brought several changes to India's tax regime, aimed at simplifying taxation and providing benefits to taxpayers. The New Tax Regime, introduced as an alternative to the existing system, has become a focal point for individuals assessing their tax liabilities.
Here are ten essential things to know about the New Tax Regime after Budget 2024.
Lower Tax Rates, Fewer Exemptions
The new tax regime offers lower tax rates as compared to the old regime as well as the previous (pre-2024 budget) standards of the new tax regime. However, it maintains the lack of deductions or exemptions taxpayers can claim.
Taxpayers opting for the new tax regime cannot claim popular deductions such as those under Section 80C, 80D, and 80E, which cover investments in tax-saving instruments, medical insurance premiums, and education loans.
Revised Tax Slabs
The Finance Act 2024 has revised the tax slabs under the New Tax Regime, making it potentially more attractive to middle-income earners. The new slabs are as follows:
Income Range (₹)
| Tax Rate
|
0 - 3,00,000
| 0%
|
3,00,001 - 7,00,000
| 5%
|
7,00,001 - 10,00,000
| 10%
|
10,00,001 - 12,00,000
| 15%
|
12,00,001 - 15,00,000
| 20%
|
Above 15,00,000
| 30%
|
This simplified structure is designed to reduce the tax burden for individuals with incomes up to ₹15 lakh.
Comparison Between Old and New Regimes
Choosing between the old and new tax regime depends on an individual's financial situation. The old regime may still be beneficial for those who put their money in tax-saving investments and other eligible deductions. However, those who do not wish to engage in complex tax planning may find the new tax regime more straightforward and financially advantageous.
An income tax calculator available on income-tax portal is an essential tool that can help taxpayers compare the tax liability under both regimes. By inputting their income details and eligible deductions, individuals can quickly determine which regime is more beneficial for them.
Eligibility for Senior Citizens
Senior citizens can also opt for the new tax regime. While the old regime offers additional exemptions such as a higher basic exemption limit and deductions for medical insurance under Section 80D, the New Tax Regime provides simplicity and lower tax rates without these benefits. Senior citizens should carefully evaluate their income sources and potential tax savings before making a decision.
Impact on House Rent Allowance (HRA)
Under the new tax regime, taxpayers cannot claim House Rent Allowance (HRA) exemptions. This could significantly impact salaried individuals who pay rent, as HRA is a substantial part of tax savings in the old regime. Those living in rented accommodations should use an income tax calculator to assess the impact on their taxable income.
No Deductions for Life Insurance Premiums
One of the significant changes in the new tax regime (both pre-2024 budget and post-2024 budget) is the unavailability of deductions for life insurance premiums under Section 80C. While life insurance remains a crucial financial product for risk management, taxpayers need to consider this when evaluating their overall tax liability. The new tax regime prioritises simplicity over incentivising savings and insurance.
Incentives for New Regime Adoption
The government has introduced incentives to encourage more taxpayers to adopt the new tax regime. For instance, the basic exemption limit is higher in the New Tax Regime (₹3 lakh) compared to the old regime (₹2.5 lakh). Moreover, the New Tax Regime provides relief through a rebate under Section 87A for individuals with income up to ₹7 lakh, effectively making their tax liability zero.
Standard Deduction in New Tax Regime
In a significant move, the Finance Act 2024 increased the standard deduction of ₹75,000 to salaries assessee. This deduction is automatically applied, reducing the taxable salary income and making the new tax regime more appealing to salaried individuals.
Switching Between Regimes
Taxpayers have the flexibility to switch between the old and new tax regimes every financial year. However, individuals with business income are allowed to switch back and forth only once. This flexibility allows taxpayers to reassess their financial situation annually and choose the regime that offers the most tax savings. A new tax regime calculator can assist in determining which option is more beneficial each year.
Tax Planning in the New Regime
While the new tax regime is designed to simplify tax filing, it also reduces the scope for tax planning through investments in tax-saving instruments. Under the old regime, taxpayers could invest in Public Provident Fund (PPF), National Savings Certificates (NSC), life insurance, and other products to reduce their taxable income. The New Tax Regime's lower tax rates aim to compensate for the lack of such deductions, but individuals who rely heavily on these instruments need to reconsider their investment strategies.
The new tax regime as modified in the Finance Act 2024 offers a simplified, lower-tax alternative to the old regime, but it comes with fewer exemptions and deductions. Taxpayers need to carefully evaluate their financial situations, including their investments in tax-saving instruments and life insurance, before making a decision.
Disclaimers:
** Tax exemptions are as per applicable tax laws from time to time.
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