The recent budget update has brought significant changes to the salary landscape, impacting both employees and employers alike. Grasping these changes is essential for confidently steering your financial future. Let us discover the key aspects of the Budget updates and unlock the insights you need:
Incentive For Salaried Employees Under New Tax Regime (NTR)
- Standard deduction for salaried employees and pensioners is proposed to be increased from INR 50,000 to INR 75,000,
- Taxable income slabs are rejigged to provide some tax relief and are proposed as under:
| Tax Rate | Income slab (in INR) | Proposed Income slab (in INR) | Tax savings (excluding surcharge and cess) |
|---|---|---|---|
| 0% | Up to 3,00,000 | Up to 3,00,000 | 0 |
| 5% | 3,00,001 to 6,00,000 | 3,00,001 to 7,00,000 | 5,000 |
| 10% | 6,00,001 to 9,00,000 | 7,00,001 to 10,00,000 | 10,000 |
| 15% | 9,00,001 to 12,00,000 | 10,00,001 to 12,00,000 | 0 |
| 20% | 12,00,001 to 15,00,000 | 12,00,001 to 15,00,000 | 0 |
| 30% | 15,00,001 and above | 15,00,001 and above | 0 |
Increase In Deduction Limit for Private Sector Employees and Employers Contributing to National Pension System (NPS)
- The deduction under section 80CCD (2) of the IT Act for employer contribution towards National Pension System under the NTR is proposed to be increased from 10% to 14% of employee’s salary for private sector employees
- Corresponding deduction is also proposed to be allowed to employers under section 36(1) (iva) of the IT Act
- Employee Contribution in NPS is now eligible for deduction under the new Tax Regime.
This amendment shall be made effective from FY 2024-25
Increase in Deduction Limit for Family Pension
- The deduction for income in the nature of family pension under section 57(ii a) of the IT Act, is proposed to increase to INR 25,000 from INR 15000.
This amendment shall be made effective from FY 2024-25
Withholding Tax
- TCS if any paid by the employee to be considered by the employer while computing the TDS liability
Default Tax Regime
- New concessional tax regime shall be the default regime and the assesse who does not wish to be assessed u/s. 115BAC would have to opt out of the said regime.
The Budget 2024 has introduced more tax relief in the new tax regime by revising the income tax slabs to make it more appealing compared to the old tax regime. Given these changes, should taxpayers who are currently using the old tax regime consider switching to the new tax regime for the financial year 2024-25?
- Deciding whether the old or new tax regime is more advantageous depends on the deductions you can claim. The break-even level of deductions varies with income levels. If the taxpayer can claim more deductions than the break-even level, the old regime is beneficial; if less, the new regime is advantageous.
- Here are the minimum deductions – can be called the break-even levels – that must be claimed in the old tax regime for different income levels to pay same tax in both the tax regimes.
- Budget 2024 increased the minimum deductions needed to achieve tax neutrality between the regimes. Under the new regime, the standard deduction is INR 75,000, compared to INR 50,000 in the old regime. Additional eligible deductions in the old regime include HRA tax exemption, LTA tax exemption, Section 80C, and Section 80D, among others.
- For example, at an income of INR 10 lakhs, the break-even deduction is INR 3.5 lakh, including an INR 50,000 standard deduction and INR 3 lakh from other deductions. Taxpayers must claim more than this to benefit from the old regime; otherwise, the new regime is preferable.
- The break-even deduction level increases with income, up to a point (INR 15.75 lakh), beyond which it stabilizes. Recent changes in the 2024 Budget increased the required deductions to achieve tax neutrality between the two regimes. For instance, for an INR 20 lakh income, the break-even deduction level rose from INR 4.25 lakh to INR 4,83,333. If a taxpayer’s deductions exceed this level, the old regime is better; if they fall short, the new regime is more advantageous.
The old and new income tax regimes offer different benefits depending on an individual’s financial situation and preferences. The new tax regime offers simplicity with fewer records and is ideal for those with personal commitments like loans or medical expenses, or for anyone seeking to avoid complex tax preparation. It’s especially advantageous for individuals with fewer deductions and exemptions compared to the old regime.
Conversely, the old tax regime might benefit senior citizens more, particularly those with substantial interest income, due to deductions like Section 80TTB. It also encourages savings by providing additional deductions and exemptions. The choice between regimes depends on individual circumstances, so a thoughtful comparison is essential to find the best fit.