Union Finance Minister Nirmala Sitharaman on Tuesday presented the budget for 2024-25 in Parliament. In this budget, Finance Minister Nirmala Sitharaman has announced better benefits for those who choose the new tax system. However, people with higher incomes and higher tax deductions may find the incentives offered by the old tax system more attractive in the long run.
Under the new and simpler tax regime, Nirmala Sitharaman has liberalised the income tax slabs and increased the standard deduction from Rs 50,000 to Rs 75,000. In view of the new amendments, it would be better for salaried individuals to adopt the new tax regime amid the government’s efforts. However, if a person is claiming deduction of up to Rs 2 lakh on home loan interest or is eligible for a hefty house rent allowance (HRA), the old tax regime makes more sense.
For example, if a salaried employee has an income of Rs 11 lakh and claims deductions of more than Rs 3,93,750, his expenses would be less under the old tax regime. While in some cases it may not be possible for an individual with an income of Rs 11 lakh to claim such a high level of deduction, couples with dual incomes can do so.
The old regime will be more suitable for a person earning Rs 60 lakh if they claim deductions of more than Rs 3,93,750. However, the new and simplified tax regime will be much more beneficial for those earning up to Rs 7.75 lakh. The old tax regime will be more ideal for people earning more than Rs 10 lakh as it has flexibility in deductions, leading to more savings for high-income individuals.
For the middle class, the finance minister raised the standard deduction — a flat deduction from the total salary earned by an employee in a year before calculating the applicable income tax rate — by 50 per cent to Rs 75,000 and changed the tax slabs for taxpayers opting for the new income tax regime.
For those earning less than Rs 7 lakh, the new tax regime may reduce their tax liability to zero. Under the new tax regime, salaried employees earning up to Rs 7.75 lakh will not have to pay any tax as they will get a higher deduction of Rs 75,000. As for people with significantly higher incomes, such as Rs 6 crore, the new and simplified tax regime will be more beneficial. The tax payable on this income will be lower as the surcharge rate is lower than the old regime (39 per cent). In short, high-income earners with higher deductions will prefer the old tax regime, while those with income up to Rs 7 lakh and above Rs 5-6 crore will prefer the simplified regime.
