The first full budget of the NDA government is out. The budget is especially significant for India as it aspires to become a developed country by 2047.
The budget 2024-2025 presented today, 23rd July, will only be for six months as the next budget will be presented again in February 2025 for the financial year 2025-2026.
The budget had a lot of announcements about government capex, fiscal deficit, indirect taxation, and the like. Yet, what keeps the common man hooked on the budget speech are the changes to personal tax rates and standard deduction, as these revisions can potentially increase household income.
It is fair to say that the budget for 2024 did deliver on the expectations of personal tax tweaks. The new tax regime saw revisions to tax slabs and an increase in the standard deduction for the new tax regime.
Read to learn more about the changes to the tax rates under the new regime and how this can benefit you.
Overview of income tax slabs under the New Tax Regime for FY 2024-25
The new tax regime saw considerable changes as the low and middle-income tax slabs were modified to increase the disposable income of salaried individuals.
Individuals filing their income tax under the new regime stand to get the benefit of up to Rs. 17,500 this year.
The table below displays a comparison of tax slabs between FY 2023-24 and FY 2024-25 for the new tax regime.
| FY 2023-24 Income Tax Slab | FY 2024-25 Income Tax Slab | Income Tax Rates |
| Up to Rs. 3 lakh | Up to Rs. 3 lakh | NIL |
| Rs.3 lakh – Rs.6 lakh | Rs.3 lakh – Rs.7 lakh | 5% |
| Rs.6 lakh – Rs.9 lakh | Rs. 7 lakh – Rs. 10 lakh | 10% |
| Rs.9 lakh – Rs.12 lakh | Rs. 10 lakh – Rs. 12 lakh | 15% |
| Rs. 12 lakh to Rs. 15 lakh | Rs. 12 lakh – Rs. 15 lakh | 20% |
| Above Rs. 15 lakh | Above Rs. 15 lakh | 30% |
It is evident that taxpayers opting for the new tax regime will enjoy lower income taxes, as the income limits for 5%, 10%, and 15% tax rates have been revised.
Standard deduction revision for the New Tax Regime:
The tax regime saw an increase in the standard deduction.
| Standard deduction 2023-24 | Standard deduction 2023-24 | Change |
| Rs. 50,000 | Rs. 75,000 | Rs. 25,000 |
The change in standard deduction will increase your tax-free income by Rs. 25,000 compared to the previous year.
Overview of income tax slabs under the Old Regime for FY 2024-25
No changes have been made to the old tax regime in Budget 2024. Those opting for the old tax regime will continue to enjoy the same benefits and deductions of the previous year.
The table below shows a comparison of tax slabs between FY 2024-25 and FY 2023-24 under the old tax regime.
| FY 2023-24 Income Tax Slab | FY 2024-25 Income Tax Slab | Income Tax Rates |
| Up to Rs. 2.5 lakh | Up to Rs. 2.5 lakh | NIL |
| Rs. 2.5 lakh – Rs.5 lakh | Rs. 2.5 lakh – Rs.5 lakh | 5% |
| Rs. 5 lakh – Rs.10 lakh | Rs. 5 lakh – Rs.10 lakh | 20% |
| Rs. 10 lakh and above | Rs. 10 lakh and above | 30% |
Old vs. New income tax regime
There are two different income tax regimes in India under which taxpayers can avail of tax benefits. The new tax regime was introduced in Budget 2020 in addition to the existing old regime.
Taxpayers are free to choose between the two regimes. The individual needs to choose between the two tax regimes based on which offers the most favorable tax outcome. For example, those who wish to avail substantial deductions and exemptions may prefer the old regime to maximize tax benefits.
Individuals in the lower tax bracket and those looking for a less complex tax regime might choose the new tax regime.
The new tax regime now offers the benefit of a higher standard deduction as compared to the old tax regime, not to mention lower tax rates for lower and middle-income tax slabs. These changes in the budget for 2024 might change your tax regime preference.
New income tax regime
Benefits of the new income tax regime:
- The new tax regime offers lower tax rates.
- Under the new regime, the tax exemption limit has been increased to ₹3 lakhs
- The new tax regime has a simpler tax structure.
- The new regime offers a higher standard deduction of Rs. 75,000 compared to Rs. 50,000 in the old regime.
Drawbacks:
- The new regime does not allow taxpayers to claim deductions and exemptions.
- The new tax regime offers limited tax planning opportunities.
Old income tax regime
Benefits of the old tax regime:
- The old scheme offers a wide range of deductions and exemptions.
- Taxpayers can invest in tax-saving instruments like PPF, NSC, and tax-saving fixed deposits.
Drawbacks:
- The old regime can appear complex due to numerous exemptions and deductions, requiring in-depth knowledge and meticulous record-keeping.
- The old regime has higher tax rates for different income slabs.
Tips for high earners to reduce taxable income
High earners have to pay higher taxes due to the progressive tax system where tax rates increase as an individual’s income rises. Consequently, high-income individuals incur a significant tax liability, which reduces the amount of money they can save. So, tax planning is crucial for individuals who belong to this income bracket.
Here are some effective ways for high earners to reduce their taxable income:
- Invest in Section 80C eligible products like PF, PPF, and ELSS, for a deduction of up to Rs 1.5 lakh from taxable income.
- Purchase health insurance to claim a deduction under Section 80D.
- Seek tax deductions on House Rent Allowance (HRA), if you receive it.
- Reduce taxable income by claiming deductions on home loan interest under Section 24, up to Rs 2 lakh.
- Save on taxes by keeping money in your savings account. Under Section 80TTA, savings account interest is tax-exempt up to Rs 10,000.
- Donate to government-approved charities to claim deductions between 50%-100% of the donated amount under Section 80G.
- Staying informed about tax laws and keeping yourself updated on the latest changes in tax laws can be beneficial in tax planning.
In addition to changes to the personal income tax slabs, the budget announced significant changes to the long-term and short-term capital gains tax front, an increase in securities transaction tax (STT), and more. These changes require closer reading and research on our part to decode it for you. We will publish a detailed post after going through the Budget fine print in detail.
Conclusion
Income tax in India is calculated based on specific income tax slabs and rates outlined in the Union Budget for each financial year. For FY 2024-25, there are notable changes in income tax slabs, impacting the tax liability for individuals.
Tax planning should align with an individual’s financial goals and needs. One should do thorough research or consult tax experts to devise a comprehensive tax strategy to reduce tax liability
Frequently Asked Questions
1. Do I need to file an income tax return if my annual income is below Rs.2.5 lakh?
You need not file an ITR if your yearly income is below Rs.2.5 lakh, but you should file a ‘Nil Return’ just for the record as you can produce it as proof of your employment. For instance, you can provide your ITR while applying for a loan or passport.
2. How is the income of a taxpayer classified?
Under Section 14 of the Income Tax Act, the taxpayer’s income has been classified under 5 different income heads: Salaried individuals, Capital gains, Gains/Profits from profession or business, Income from house property, and Income from other sources.
3. Does family pension come under salary income during taxation?
No, family pension will not be taxed under salary income but as ‘income from other sources.’
4. Who can claim a rebate under Section 87A?
Rebate under Section 87A can be claimed by any resident Indian whose total annual income is below Rs. 5 lakh. The maximum available rebate under 87A is Rs.12,500.
5. Will my income be taxed if I am an agriculturist?
Any income which is generated from agriculture or allied activities is not taxed. However, it will be considered for calculating total tax if you have any non-agricultural income along with income from farming.
6. Is income up to Rs.5 lakh tax-free?
No, income up to Rs.5 lakh is not tax-free. However, individuals who earn an income of up to Rs.2.50 lakh in a financial year do not have to pay taxes.
7. Can I switch the income tax regime for my tax filing?
Yes, you can choose to file your income tax returns as per the old regime or the new regime as per your preference.
8. Are income tax slabs in India subject to change?
Yes, the income tax slabs in India are subject to changes.
9. Who makes changes to the income tax slabs in India?
The changes to the income tax slabs in India are proposed by the Ministry of Finance, government of India.
10. When are the changes to the income tax slabs in India proposed?
The changes to the income tax slabs in India are announced by the finance minister when the annual budget is presented every year in the month of February.
