Introduction
The Union Budget 2024 proposed considerable changes to the income-tax slabs with respect to the new tax regime under FY 2024-25 (Assessment Year 2025-26).
This step is taken toward more relief under taxation for a taxpayer so as to make a taxation structure somewhat simplified and an improvement in terms of tax compliance.
As per Someshwar Srivastava these income slabs are strategically presented as the alternative for all taxpayers with the new and improved regime on one hand, the old one still exists with a plethora of deductions and exemptions, while this new one seems more streamlined, with lower rates for most of the income brackets.
New Income Tax Slabs for FY 2024-25 (New Tax Regime)
| Income Slab | Tax Rate |
| Up to ₹3,00,000 | Nil |
| ₹3,00,001 to ₹6,00,000 | 5% |
| ₹6,00,001 to ₹9,00,000 | 10% |
| ₹9,00,001 to ₹12,00,000 | 15% |
| ₹12,00,001 to ₹15,00,000 | 20% |
| Above ₹15,00,000 | 30% |
Key Highlights of the New Regime:
- No Tax Upto ₹3 Lakh: Individuals earning up to ₹3 lakh per annum continue to be exempt from income tax.
- Revised Tax Rates: The tax rates have been revised across different income slabs, resulting in potential tax savings for many taxpayers.
- Increased Standard Deduction: The standard deduction for salaried individuals has been increased from ₹50,000 to ₹75,000, providing additional tax relief.
What Someshwar Srivastava has to say?
“The revised tax slabs under the new regime offer a significant advantage for a large section of taxpayers,” observes Someshwar Srivastava, an experienced investor.
“The increased standard deduction and the revised tax rates can lead to substantial tax savings, particularly for individuals in the lower and middle-income brackets.”
Comparing the New Regime with the Old Regime
The old regime allows for various deductions and exemptions under sections like 80C (investments), 80D (medical expenses), and 80G (donations).
These deductions can significantly reduce taxable income, potentially leading to lower tax liabilities for some taxpayers.
Here’s a simplified comparison:
- Simpler tax structure with lower tax rates.
- Limited deductions and exemptions.
- Increased standard deduction.
- More suitable for individuals with fewer deductions and lower to moderate incomes.
- More complex with various deductions and exemptions.
- Potentially higher tax savings for individuals with significant investments and eligible deductions.
- May be more beneficial for high-income earners and individuals with specific financial circumstances.
In Someshwar Srivastava’s words “The choice between the old and new regimes depends heavily on individual circumstances,”. “Taxpayers need to carefully evaluate their investment patterns, deductions, and overall financial situation to determine the most advantageous option.”
Factors to Consider When Choosing a Regime:
- Investment Patterns: If you have significant investments in tax-saving instruments like Public Provident Fund (PPF), Employee Provident Fund (EPF), or eligible investments under Section 80C, the old regime might offer more benefits.
- Deductions and Exemptions: If you are eligible for various deductions and exemptions under the old regime, such as those for home loan interest, medical expenses, or donations, it might be more advantageous to stick with the old regime.
- Income Level: The new regime generally benefits individuals with lower to moderate incomes. However, high-income earners might find the old regime more advantageous due to the availability of deductions and exemptions.
- Financial Planning: If you have a well-structured investment plan that utilizes various tax-saving instruments, the old regime might be more suitable.
- If you prefer a simpler tax structure and lower tax rates, the new regime might be more appealing.
It is crucial to conduct a thorough analysis before making a decision, emphasizes Srivastava. Taxpayers should consider consulting with a qualified financial or tax professional to understand the implications of each regime and make an informed choice.
Impact of the New Regime
The government aims to encourage greater tax compliance by simplifying the tax structure and making the new regime more attractive. By reducing the tax burden for a larger segment of the population, the government also hopes to boost consumer spending and stimulate economic growth.
Conclusion
The new regime has the potential to significantly impact consumer spending, observes Someshwar Srivastava.
Reduced tax liabilities can translate into increased disposable income, which can be utilized for consumption, investments, or other financial goals.
This increased disposable income can have a positive ripple effect on the economy, boosting demand for goods and services, and ultimately contributing to economic growth.
However, it’s crucial to note that the overall impact on consumer spending will depend on various factors, including consumer confidence, economic growth, and other macroeconomic factors.