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The New Tax Regime for the Financial Year 2024-25 has not yet been announced. It is expected to be announced in February 2024 by Finance Minister Nirmala Sitharaman.
This year because of the election, the interim budget will be passed instead of a full-year fiscal budget. This is done because the general elections are expected between March and May. So, when the new government comes to power, the budget will be presented by them.
In the article, we shared how the new tax regime is better than the old tax regime. And what are the points that taxpayers must choose in the new tax regime to save tax liability?
What is the New Tax Regime?
In the Union Budget 2020, Finance Minister Nirmala Sitharaman declared that the new tax regime is a default one that starts from 1st April 2020. The tax rates in the new regime are lower for higher income as compared to the old tax regime.
So, when you choose a new tax regime, then most of the deductions and exemptions are available under the Income Tax Act, of 1961. Check the effect of the new tax regime on the Insurance & Investments sectors here.
The new regime was made the default option for all taxpayers such as individuals, Hindu Undivided Families (HUF), and Association of Persons (AoPs).
Note: The income tax slab rates for the old regime are the same as the previous years’ income tax slab rates.
The factors that taxpayers must check while choosing a new tax regime are as follows:
In the budget 2023, it is announced that if the income of an individual does not exceed Rs. 7 lakhs in a financial year, is not taxable. The limit was Rs. 5 lakhs before.
A resident individual paying tax as per the new tax regime under Section 115BAC is allowed a higher amount of rebate under Section 87A if the total income is up to Rs. 7,00,000. Further, if the total income of the resident individual marginally exceeds Rs. 7,00,000, he will be eligible for the marginal rebate.
This rebate is only available for the individual residents. The Non-Resident Individuals (NRIs), Hindu Undivided Family (HUF) and the firms are not eligible for rebates.
The standard deduction of Rs. 50 thousand is allowed in the new tax regime which was restricted in the old tax regime. After the inclusion, tax-free income including the rebate now stands at Rs. 7 lakhs.
The main comparison between the new tax regime and the old tax regime is based on the tax rates. The tax rates in the new regime are lower are lower as compared in the old tax regime. The taxpayers have tax relief in the new tax regime because of broader tax slabs and lower tax rates.
The surcharge rate on income over Rs. 5 crores has been reduced to 25% which earlier was 37%. This change has brought down the effective tax rate from 42.74% to 39%. All these are only in the New Tax Regime.
The surcharge rates for Individuals/ HUF/ AOP/ BOI are as follows:
Note: In budget 2023, the highest surcharge of 37% is reduced to 25% which is applicable from 1st April 2023.
The tax rates for assessment year 2024-25 are as follows:
The leave encashment amount claimed as exemption is increased to Rs. 25 lakhs from Rs. 3 lakhs. This is for the non-government employees. In leave encashment, different types of leaves are included such as causal leave, earned leave, medical leaves, holiday leaves, maternity leaves and sabbaticals.
To conclude, the old tax regime and the new tax regime both have their pros and cons. For example: the new tax regime does not include several dedications and exemptions such as HRA, LTA, 80C, 80D and others. On the other hand, the new tax regime is for those who want minimal deductions and want to avoid the burden of preparing the extensive tax. Choose the tax regime that fulfils your requirements.
Hey there, I'm Dushyant Sharma. With the extensive knowledge I've gained in past 8 years, I have been creating content on various subjects such as banking, insurance, telecom, and all the important registration and licensing processes for various companies. I'm here to help everyone with my expertise in these areas through my articles.
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