In the Union Budget 2024, Finance Minister Nirmala Sitharaman has made significant updates to the income tax slabs under the new tax regime. These changes aim to make the new regime more appealing compared to the old one.
If you’re currently using the old tax regime, you might be wondering whether it’s worth switching to the new one for the financial year 2024-25. Let’s break down the changes and how they might affect you.
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What’s New in the Tax Regime?
The Budget has adjusted the income tax slabs under the new tax regime to offer more relief. Specifically, the standard deduction has been increased from Rs 50,000 to Rs 75,000.
Additionally, family pensioners now get a higher standard deduction of Rs 25,000, up from Rs 15,000. Also, the deduction on an employer’s contribution to the employee’s NPS account has been raised from 10% to 14%.
To decide whether to stick with the old tax regime or switch to the new one, you need to look at the deductions you can claim. Essentially, if the total deductions you’re eligible for under the old regime exceed a certain threshold, it might still be better for you than the new regime.
Here’s how it works:
Break-Even Deductions: The new tax regime offers a lower tax rate but fewer deductions. To determine which regime benefits you more, you need to compare the deductions available under the old regime to the break-even level required to match the tax liability of the new regime.
Here are the minimum deductions referred to as break-even levels that you must claim in the old tax regime for various income levels to ensure your tax payment is the same as under the new tax regime.
| Gross Income Level (In Rs) | Minimum deductions that must be claimed in Old Tax Regime | Tax payable in Old Tax Regime | Tax payable in proposed New Tax Regime |
| At 7.75 lakhs | 3,25,000 | – | – |
| At 10 lakhs | 3,50,000 | 44,200 | 44,200 |
| At 12.5 lakhs | 4,31,250 | 79,300 | 79,300 |
| At 15.75 lakhs | 4,83,333 | 1,45,600 | 1,45,600 |
| At 20 lakhs | 4,83,333 | 2,78,200 | 2,78,200 |
Income Levels and Deductions: The break-even point for deductions increases with higher income levels. For example, if your annual income is Rs 10 lakh, you need to claim at least Rs 3.5 lakh in deductions under the old regime to make it as tax-efficient as the new regime. This includes the standard deduction of Rs 50,000 plus other eligible deductions like HRA, LTA, and Section 80D.
Impact on Higher Incomes: For incomes over Rs 15.75 lakh, the break-even deduction remains constant. For instance, if your income is Rs 20 lakh, the minimum deduction required to stay tax-neutral between the regimes has increased from Rs 4.25 lakh to Rs 4.83 lakh – a rise of Rs 58,333.
Why the Change Matters
The increase in the break-even deduction level means that to benefit from the old tax regime, you must claim more deductions than before. If you can’t claim enough deductions to meet this new threshold, the new tax regime becomes more attractive.
Also Read: Moving Out Of India? Tax Clearance Certificate Now Required for Leaving the Country
The changes in the Budget 2024 have made the new tax regime more beneficial for many taxpayers. If your deductions under the old regime do not reach the new break-even levels, it might be advantageous to switch. Remember, the old tax regime hasn’t seen any changes in its tax rules or slabs; the updates are specific to the new tax regime.
For a clear decision, consider calculating your potential tax liability under both regimes with the new rules in mind. This will help you make an informed choice about which tax regime suits your financial situation better.
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