The Indian government has introduced several updates to the new tax regime for the financial year 2024-25. These changes are designed to simplify tax compliance, make filing easier, and offer a more simplified structure for taxpayers.**
Let’s look at the key highlights of the new tax regime, discuss the available exemptions and deductions allowed in the new tax regime, and understand the strategies to maximise tax savings.**
Key Highlights of the New Tax Regime for FY 2024-25**
Here is a look at some of the revisions to the new tax regime that may make it more beneficial for certain taxpayers.
1. Simplified Income Tax Slabs for 2024
The government has revised the income tax slabs under the new regime to make them more taxpayer-friendly. The new tax slabs are designed with progressive tax rates, offering lower rates for lower-income brackets while ensuring higher-income groups contribute proportionally.
2. Revised Tax Rebate Limits
One of the most significant updates is the enhancement of tax rebate limits under Section 87A. Taxpayers with an annual income of up to ₹7 lakh can now enjoy a full rebate, effectively paying no taxes under the new regime. This change has been welcomed as it benefits middle-class taxpayers.
3. Updated Basic Tax Exemption Limit
The basic tax exemption limit under the new tax regime has been increased to ₹3 lakh from the previous ₹2.5 lakh. This revision provides additional relief, particularly to individuals in the lower-income brackets, making the regime more attractive.
4. Changes to Surcharge Rates for High-Income Individuals
High-income earners also see changes in surcharge rates. The maximum surcharge for individuals with an annual income exceeding ₹5 crore has been reduced from 37% to 25%. This lowers the effective tax rate for this group.
5. Default Regime
The new tax regime has been made the default option for taxpayers. However, individuals still have the flexibility to opt for the old tax regime if it better suits their financial goals and tax-saving preferences.
What are Exemptions and Deductions in the New Tax Regime?**
Understanding the concept of exemptions and deductions is crucial for taxpayers navigating the new tax regime. While the regime reduces the scope for tax-saving instruments, certain allowances remain available.
Differences Between Exemptions and Deductions
- Exemptions: These refer to specific income components excluded from taxation. For example, the House Rent Allowance (HRA) and Leave Travel Allowance (LTA) are traditional examples of exemptions.
- Deductions: These can reduce taxable income by accounting for specific expenses, investments, or contributions. Examples include deductions under Section 80C for a life insurance policy or investment such as ELSS or PPF.
Exemptions Available in the New Tax Regime
Although the new regime eliminates most exemptions, some are still permitted:
- Employer contributions to the National Pension System (NPS).
- Retirement benefits such as gratuity and leave encashment.
- Income from agriculture (under certain conditions).
Deductions Allowed in the New Tax Regime
Key deductions in the new tax regime include:
- Standard Deduction: A standard deduction of ₹75,000 is now available for salaried individuals and pensioners.
- Contributions to Agnipath Scheme: Specific contributions under the scheme are deductible.
- NPS Contributions: Employer contributions to the NPS, up to 10% of salary (Basic + DA), are deductible.
By understanding which deductions in the new tax regime are allowed, taxpayers can better plan their finances.
Common Exemptions and Deductions Not Available in 2024**
Several popular exemptions and deductions are omitted in the new regime:
- HRA and LTA.
- Deductions under Section 80C, including investments in a life insurance policy, such as ULIPs.
- Deductions for savings bank interest under Section 80TTA.
- Exemptions for medical reimbursement and education allowances.
Impact of the Omitted Deductions on Taxpayers
The removal of these exemptions has simplified the tax filing process but has also reduced tax-saving opportunities. Taxpayers need to explore alternative strategies to minimise their tax liabilities under the new regime.
Deductions on Business Income Under the New Regime**
For businessowners, the variety of deductions available is less.
Key Business Deductions Not Permitted
Business owners face limitations on deductions under the new regime. Key deductions, such as those for capital expenditure, professional tax, and depreciation (beyond prescribed limits), are restricted.
Implications for Business Owners
With fewer deductions available, business owners need to assess whether the new tax regime aligns with their financial goals. They may need to adjust their investment strategies or consider alternative tax-saving measures.
Tax-Saving Plans for the New Tax Regime**
Despite the reduced scope for exemptions and deductions, strategic planning can help taxpayers maximise their savings.
Best Tax-Saving Strategies for 2024
1. Invest in NPS: Contributions to the National Pension System remain deductible.
2. Utilise Standard Deduction: Salaried individuals should ensure they claim the ₹75,000 standard deduction.
3. Agnipath Scheme Contributions: Leverage deductions available under this scheme (if eligible).
Popular Tax-Saving Investment Options
While traditional options such as Section 80C deductions are not available, taxpayers can consider:
- Life insurance policies for long-term financial stability.
- Term insurance plans for comprehensive coverage and peace of mind.
Utilising the Income Tax Calculator for Maximum Savings
The income tax calculator is an indispensable tool for evaluating tax liabilities under the new regime. Taxpayers can use it to compare the old and new regimes, ensuring they make the most tax-efficient choice.
Old Regime vs. New Regime Deductions**
There are pros and cons when it comes to both regimes. The key difference between them is as follows:
- Old Regime: Offers more deductions and exemptions but requires thorough record-keeping and planning.
- New Regime: Simpler structure with fewer deductions, suitable for those seeking a hassle-free tax filing experience.
Taxpayers should evaluate their income levels, investment habits, and long-term financial goals to determine which regime aligns better with their needs.
The new tax regime for FY 2024-25 introduces simplified structures and broader inclusivity, with higher rebates and a higher exemption threshold. While it limits the scope for tax-saving instruments, understanding which deductions in the new tax regime are allowed and leveraging the available options can help taxpayers optimise their financial planning. Using tools such as an income tax calculator, individuals can make informed decisions tailored to their unique financial situations.**
FAQs**
What are the deductions allowed in the new tax regime?
Deductions such as the ₹50,000 standard deduction, NPS contributions, and specific Agnipath Scheme contributions are allowed.
How can I maximise tax savings in the new regime?
To save tax in the new regime, you can focus on strategic investments such as NPS and use the income tax calculator to identify the most tax-efficient options.
Is the standard deduction applicable under the new regime?
Yes, a standard deduction of ₹75,000 is applicable for salaried individuals and pensioners.
What is Section 10 exemption? Is it allowed in the new regime?
Most Section 10 exemptions (such as HRA and LTA) are not allowed in the new regime.
How does the new regime compare with the old regime in terms of rebates?
The new regime offers higher rebates for middle-class taxpayers, such as the full tax rebate on incomes up to ₹7 lakh.
How can I opt for the new tax regime in 2024?
You can opt for the new tax regime while filing your income tax return by selecting the appropriate option in the ITR form.
** Tax exemptions are as per applicable tax laws from time to time.