The finance minister Nirmala Sitharaman has made changes in the income tax slabs under the new tax regime in Budget 2024. The new income tax slabs under the new tax regime have retrospectively come into effect from April 1, 2024 for the current financial year 2024-25. The changes in income tax slabs of new tax regime were announced in July 2024 as government presented its full budget after the Lok Sabha elections 2024. Remember there were no changes announced by the government in the interim budget announced in February 2024.
Not all the tax slabs have been changed in the new tax regime. Only two tax slabs under the new tax regime have been changed in the Budget 2024. The changes in the income tax slabs raise the upper limit in two slabs by Rs 1 lakh.
The current Rs 3 lakh-Rs 6 lakh slab has become Rs 3 lakh-Rs 7 lakh; and the Rs 6 lakh-Rs 9 lakh slab has become Rs 7 lakh-Rs 10 lakh. This means people earning Rs 7 lakh would be taxed at 5% instead of 10% earlier; and those earning Rs 10 lakh would be taxed at 10% instead of 15% earlier.
The income tax slabs under the new tax regime are as follows: Rs 0 – Rs 3,00,000 – 0%, Rs 3,00,001 and Rs 7,00,000 – 5%, Rs 7,00,001 and Rs 10,00,000-10%, Rs 10,00,001 and Rs 12,00,000 – 15%, Rs 12,00,001 and Rs 15,00,000-20% and Rs 15,00,001 and above – 30%.
Apart from making changes in the two income tax slabs in the new tax regime, the finance minister has announced changes in the standard deduction limit and employer’s contribution to employee’s NPS account available in the new tax regime. Even standard deduction available for family pensioners have been changed under the new tax regime. No other changes, such as tax rebate available under the Section 87A, surcharge rate applicable for incomes exceeding Rs 50 lakh, have been made in the new tax regime.
The new tax regime continues to offer tax rebate of up to Rs 25,000 for taxable incomes not exceeding Rs 7 lakh. Further, no change in surcharge for those earning more than Rs 2 crore.
The changes have been made to make the new tax regime attractive. However, no changes have been made in the old tax regime. The income tax slabs, rates and other income tax rules have not been changed under the old tax regime.
The old rules will continue to apply under the old tax regime. This means that higher deduction available under the new tax regime for standard deduction and employer’s contribution will not be available in the old tax regime. Further, tax rebate of Rs 12,500 will continue to be available under the old tax regime if the taxable incomes do not exceed Rs 5 lakh.
The main difference between the old and new tax regime is the availability of usual deductions and tax exemptions. The new tax regime does not allow deduction of common deductions such as Section 80C deduction up to Rs 1.5 lakh for specified investments and expenditures, Section 80D deduction up to Rs 25,000/Rs 50,000 for health insurance premium paid and Section 80TTA deduction of up to Rs 10,000 for interest earned from savings accounts of bank and post office, among others.
The income tax slabs applicable under the old tax regime depends on the age of individual.
The old tax regime offered multiple basic income exemption limits depending on the age of the taxpayer. For individuals below 60 years of age, the basic income exemption limit is Rs 2.5 lakh. For senior citizens aged 60 years and above but below 80 years, the basic exemption limit is Rs 3 lakh. For super senior citizens aged 80 years and above, the basic exemption limit is Rs 5 lakh.
Currently, the new tax regime is the default tax regime. An individual who wants to opt for the old tax regime now has to specifically choose it while filing income tax return. When new tax regime was introduced in FY 2020-21, it was an optional tax regime. The new tax regime has lower tax rates as compared with the old tax regime. If individuals opt for the new tax regime, they can now claim only two deductions – Standard deduction of Rs 50,000 from salary/pension income and Section 80CCD (2) for employer’s contribution to the employee’s NPS account.
An individual taxpayer not having business income is required to choose between the two regimes every financial year.
Currently, a taxpayer having business income wanting to continue with the old tax regime in a financial year, will specifically have to opt for it. Once opted, they would have once in a lifetime option to switch to new tax regime. Once new tax regime is opted, they cannot opt for old tax regime again.
