As March ends, everyone is planning to file their taxes, but before doing that, it is always wise to know the new taxation policies according to the year’s budget.
How Budget 2024 affects taxation:
- No Change in Tax Rates: The existing income tax rates and threshold limits remain the same for the old and new tax regimes. The new tax regime introduced last year is now the default option, with the old regime still available for those who prefer it.
- Withdrawal of Outstanding Disputed Tax Demands: The finance minister withdrew all disputed direct tax demands up to ₹25,000. This move aims to ease the burden on taxpayers and foster compliance and economic growth.
- Focus on Taxpayer Services: Over the last five years, the government has improved taxpayer services by introducing faceless assessment and appeal processes, updated income tax returns, and prefilling tax returns. The average processing time for returns has significantly reduced.
How To Plan Your Taxes
In India, the Income Tax applies to individuals based on a slab system, and different tax rates are assigned to different income ranges. As the person’s income increases, the tax rates also increase. This type of taxation allows for a fair and progressive tax system. The income tax slabs are revised periodically, typically during each budget. These slab rates vary for different groups of taxpayers. So, planning your taxes can be like exploring a complicated maze. So today, we’ll make it a bit easier for you to navigate by suggesting the best tax regime depending on your income, but before that, we must understand the tax regimes.
Old Tax Regime vs. New Tax Regime
Old Tax Regime:
- Tax Rebate: Up to ₹12,500 is applicable if the total income does not exceed ₹5,00,000 (not applicable for NRIs).
- Exemption Limits:
- Individuals, HUF below 60 years old, and NRIs: Up to ₹2,50,000.
- Senior citizens over 60 but under 80 years: Up to ₹3,00,000.
- Super senior citizens aged above 80 years: Up to ₹5,00,000.
- Surcharge and Cess: Applicable over and above the tax rates.
New Tax Regime:
- Tax Rebate: Up to ₹25,000 is applicable if the total income does not exceed ₹7,00,000 (not applicable for NRIs).
- Exemption Limit:
- Individuals, HUF opting for the new regime: Up to ₹3,00,000.
- Surcharge and Cess: Applicable over and above the tax rates.
Comparison of Tax Rates
| Income Slab (₹) | Age < 60 years & NRIs | Age 60 to 80 years | Age above 80 years |
| Up to ₹2,50,000 | NIL | NIL | NIL |
| ₹2,50,001 – ₹3,00,000 | 5% | NIL | 5% |
| ₹3,00,001 – ₹5,00,000 | 5% | 5% | 5% |
| ₹5,00,001 – ₹6,00,000 | 20% | 20% | 10% |
| ₹6,00,001 – ₹7,50,000 | 20% | 20% | 10% |
| ₹7,50,001 – ₹9,00,000 | 20% | 20% | 15% |
| ₹9,00,001 – ₹10,00,000 | 20% | 20% | 15% |
| ₹10,00,001 – ₹12,00,000 | 30% | 30% | 20% |
| ₹12,00,001 – ₹12,50,000 | 30% | 30% | 20% |
| ₹12,50,001 – ₹15,00,000 | 30% | 30% | 25% |
| Above ₹15,00,000 | 30% | 30% | 30% |
Income Tax Slabs for FY 2023-24 (AY 2024-25)
The income tax slabs under the new tax regime are as follows:
| Income Range (₹) | Tax Rate |
| ₹0 to ₹3,00,000 | 0 |
| ₹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% |
Advantages of the New Tax Regime
- Simplified Tax Planning: No need to maintain travel tickets and rent receipts.
- Increased Exemption Limit: The basic exemption limit was raised from ₹2.5 lakhs to ₹3 lakhs.
- Reduced Surcharge Rate: The surcharge rate for individuals with income exceeding ₹5 Crores decreased from 37% to 25%.
Which is the best tax regime?
There is no one size fits them all, but depending on your income, we can draw a rough estimate about which will be the best tax regime for you:
Income under 7.5 Lakhs:
The new tax regime is for you if your salary is under 7.5 lakhs. Here’s why: Under the new tax regime, your income is tax-free, whereas it was 5.5 lakhs under the old tax regime. On the other hand, under the old tax regime, it became Rs 54,600, making the new tax regime a no-brainer.
Income over 7.5 Lakhs
This is where it gets tricky. Depending on your source of income, this might vary, but for most people, the old tax regime would be better. To take complete advantage of it, one must plan their salary properly. If done correctly, the income can become tax-free, but you’ll have to pay taxes under the new tax regime. For example, if your salary is Rs 8 lakhs, you can get Rs 2.5 lakhs as an allowance from your company.
Then your effective salary becomes Rs 5.5 lakhs, hence being tax-free. Out of this, Rs 50,000 is exempted from the salary. This leaves Rs 2.5 lakhs taxable, making a tax of Rs 12,500, which is rebated, which makes the payable tax 0. You’ll be paying Rs 31,200 in taxes under the new regime. You can learn more about planning your by reading our article on 5 Ways To Restructure Your Salary To Reduce Income Tax Outgo.
| Old Regime | New Regime | |
| Salary | 8,00,000 | 8,00,000 |
| Allowance | 2,50,000 | – |
| Effective Salary | 8,00,000 – 2,50,000 | – |
| 5,50,000 | 8,00,000 | |
| Exemption | 50,000 | 50,000 |
| Effective income | 5,00,000 | 7,50,000 |
| Slab 1 Tax | 2,50,000 x 0% = 0 | 3,00,000 x 0% = 0 |
| Slab 2 Tax | 50,000 x 5% = 2,500 | 3,00,000 x 5% = 15,000 |
| Slab 3 Tax | 2,00,000 x 5% = 10,000 | 1,50,000 x 10% = 15,000 |
| Due Tax | 12,500 | 30,000 |
| Rebate (87A | 12,500 | 0 |
| Health and Education Cess | 0 | 1200 |
| Payable Tax | 0 | 31,200 |
*Remember, a rebate is applicable on your taxable income only when it is less than 5 lakhs in the old regime and 7 lakhs in the new regime. Anything above this threshold and the rebate under section 87A is no longer available.
Freelancers and investors
If you gain your income through freelancing or investing in the market, then once again, the old tax regime will be better for you in the income Rs 3 lakhs, as after that, the income becomes taxable under the new regime, while under the old regime, it Rs 2.5 lakhs.
In this case, choosing the old regime over the new one is more beneficial as you can plan your income and minimize effective taxes. Investors can take advantage of clauses for short-term and long-term capital gains, about which you can learn more here: Short-Term And Long-Term Capital Gains: Save Upto Rs 15,000 Tax On Your Equity Holdings. In this case, planning your taxes can be tricky, and getting help from an expert is always suggested.
Planning your taxes can be challenging, but it is also highly rewarding, and staying up to date with the latest tax policies helps make the fruit of your labor even sweeter.
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FAQ
What are the new income tax slabs and tax rates under the new tax regime?
The new income tax slabs under the new tax regime for FY 2023-24 (AY 2024-25) are as follows:
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%.What is the surcharge amount under the revised new tax regime? Is that change applicable only to those with incomes more than ₹5 crores?
Under the new tax regime, the surcharge rate has been reduced to 25% from 37% for taxpayers earning more than ₹5 crores. This surcharge change applies only to those who opt for the new tax regime and have an income exceeding ₹5 crores.
Why is it being said that there is no income tax up to ₹7 lakh?
A tax rebate reduces your tax amount. While the tax slabs apply to all individuals (residents or non-residents), the rebate only applies to resident individuals. When computing taxes, they are first calculated per the slab rates, and then the rebate is applied to reduce the final tax amount to zero for eligible residents.
What deductions are available under the revised new tax regime?
Deductions available in the new regime include:
Standard deduction for salaried individuals (up to ₹50,000).
Standard deduction on pension: ₹15,000 or 1/3rd of pension (whichever is lower).
Interest on Home Loan (u/s 24b) for let-out property.
Employer’s contribution to NPS.
All contributions to Agniveer Corpus Fund (section 80CCH).Will I receive an exemption on leave encashment under the new tax regime?
Yes, leave encashment is exempt under the new tax regime. In Budget 2023, the exemption threshold for non-government employees was increased from ₹3 lakhs to ₹25 lakhs. Thus, leave encashment of up to ₹25 lakhs at retirement is tax-free under Section 10 (10AA).
I’m Archana R. Chettiar, an experienced content creator with
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