Maximize Your Tax Savings: How Budget 2024 Makes the New Income Tax Regime More Attractive

Budget 2024: How the New Income Tax Regime Can Save You Money

The Union Budget 2024 has introduced significant changes to the income tax regime, making the new income tax regime more attractive for taxpayers. These changes aim to simplify tax filing and provide greater savings. This detailed guide will explore the key highlights of the new income tax regime, compare it with the old regime, and demonstrate how much you can save under the new provisions.

Key Highlights of Budget 2024

1. Increased Basic Exemption Limit
   • The basic exemption limit under the new tax regime has been increased from ₹2.5 lakh to ₹3 lakh. This change directly benefits taxpayers by reducing their taxable income.
2. Revised Tax Slabs
   • The new tax regime has introduced revised tax slabs, which are more beneficial for lower and middle-income groups. The revised slabs are:
     • Up to ₹3 lakh: Nil
     • ₹3 lakh to ₹6 lakh: 5%
     • ₹6 lakh to ₹9 lakh: 10%
     • ₹9 lakh to ₹12 lakh: 15%
     • ₹12 lakh to ₹15 lakh: 20%
     • Above ₹15 lakh: 25%
3. Standard Deduction
   • A standard deduction of ₹50,000 is now available under the new tax regime. This deduction was previously available only under the old regime.
4. Family Pension
   • Family pensioners can now claim a standard deduction of ₹15,000 or one-third of the pension, whichever is less, under the new regime.
5. Higher Rebate
   • The rebate under Section 87A has been increased from ₹12,500 to ₹15,000, benefiting individuals with an income of up to ₹7 lakh. This effectively means that individuals with income up to ₹7 lakh will not have to pay any tax.
6. Simplified Compliance
   • The new regime simplifies compliance by removing the need to claim multiple deductions and exemptions. This reduces the paperwork and complexity involved in tax filing.

Comparison of New and Old Tax Regimes

Income Slab	Old Tax Regime (Rates)	New Tax Regime (Rates)
Up to ₹3 lakh	Nil	Nil
₹3 lakh to ₹5 lakh	5%	5%
₹5 lakh to ₹7.5 lakh	20%	10%
₹7.5 lakh to ₹10 lakh	20%	15%
₹10 lakh to ₹12.5 lakh	30%	20%
₹12.5 lakh to ₹15 lakh	30%	20%
Above ₹15 lakh	30%	25%

Tax Savings Under the New Regime

To illustrate the potential tax savings under the new regime, let’s consider different income scenarios.

Scenario 1: Income of ₹5 lakh

• Old Regime:
  • Income: ₹5,00,000
  • Deductions (e.g., Section 80C, 80D): ₹1,50,000
  • Taxable Income: ₹3,50,000
  • Tax: ₹12,500
  • Rebate under Section 87A: ₹12,500
  • Net Tax: Nil
• New Regime:
  • Income: ₹5,00,000
  • Taxable Income: ₹5,00,000
  • Tax: ₹25,000
  • Rebate under Section 87A: ₹25,000
  • Net Tax: Nil

In this scenario, both regimes result in zero tax, but the new regime simplifies the process by eliminating the need for deductions.

Scenario 2: Income of ₹10 lakh

• Old Regime:
  • Income: ₹10,00,000
  • Deductions (e.g., Section 80C, 80D): ₹1,50,000
  • Taxable Income: ₹8,50,000
  • Tax: ₹1,02,500
  • Rebate under Section 87A: Nil
  • Net Tax: ₹1,02,500
• New Regime:
  • Income: ₹10,00,000
  • Taxable Income: ₹10,00,000
  • Tax: ₹75,000
  • Rebate under Section 87A: Nil
  • Net Tax: ₹75,000

In this scenario, the new regime results in a tax saving of ₹27,500.

Scenario 3: Income of ₹20 lakh

• Old Regime:
  • Income: ₹20,00,000
  • Deductions (e.g., Section 80C, 80D): ₹1,50,000
  • Taxable Income: ₹18,50,000
  • Tax: ₹3,72,500
  • Rebate under Section 87A: Nil
  • Net Tax: ₹3,72,500
• New Regime:
  • Income: ₹20,00,000
  • Taxable Income: ₹20,00,000
  • Tax: ₹3,25,000
  • Rebate under Section 87A: Nil
  • Net Tax: ₹3,25,000

In this scenario, the new regime results in a tax saving of ₹47,500.

Advantages of the New Regime

1. Simplification
   • The new regime simplifies tax compliance by reducing the need for extensive documentation and the claiming of deductions and exemptions.
2. Clarity
   • With clear and straightforward tax slabs, taxpayers can easily understand their tax liabilities without needing extensive calculations.
3. Flexibility
   • The new regime provides flexibility, particularly for individuals who do not have significant investments or expenditures that qualify for deductions under the old regime.
4. Encourages Compliance
   • By making the tax filing process simpler and more transparent, the new regime encourages greater compliance and reduces the chances of errors or evasion.

Conclusion

Budget 2024 has made the new income tax regime more attractive by increasing the basic exemption limit, revising tax slabs, and introducing a standard deduction. These changes offer substantial tax savings, especially for middle and high-income groups. While the old regime with its numerous deductions and exemptions might still be beneficial for some, the new regime simplifies the process and provides significant savings for many taxpayers. As you plan your taxes for the coming year, consider the benefits of the new regime and how it aligns with your financial situation.