Key Changes in India's Income Tax Regime for FY 2024-25

Introduction

Tax season 2024 is upon us. Whether you're new to the world of tax or you’re a seasoned player, keeping up with all the relevant financial updates is very important. The new fiscal year (FY 2024-25) has brought significant changes to India's income tax regime, effective from April 1, 2024.?

These changes aim to simplify tax planning and provide relief to taxpayers. It’s important to note that this is the interim budget and more major financial changes may come about soon after the new government is formed post-elections. Here are the key modifications as of now and their implications:

Quick summary of the advantages of the New Tax Regime

1. Simplified Tax Planning: The new tax regime eliminates the need to maintain records of travel tickets and rent receipts.
2. Increased Basic Exemption Limit: The basic exemption limit has been increased from ?2.5 lakhs to ?3 lakhs. The tax rate of 30% will?
3. Reduced Surcharge Rate: The surcharge rate for individuals with income exceeding ?5 Crores has been reduced from 37% to 25%.
4. Rebate Limit: The rebate limit under section 87A has been increased to ?25,000 for taxable incomes up to ?7 lakhs.
5. No Income Tax for Income up to ?7.5 Lakhs: Taxpayers who choose the new tax regime do not have to pay tax if their income does not exceed ?7.5 lakhs, owing to the new 2023 tax rebate and standard deduction.

Income Tax Slabs

The revised tax slab for the new tax regime is as follows:

Changes in Surcharge Rate

Limitations of the New Tax Regime

1. No Deductions: The new tax regime does not allow taxpayers to claim deductions under sections 80C, 80D, 80E, 80G, and others.
2. No Exemptions: The new tax regime eliminates the tax benefits of maximum exempt allowances like House Rent Allowance (HRA) and leave travel allowance (LTA) etc.

Detailed changes:

Default Regime

The new tax regime is set as the default regime, meaning that if taxpayers do not specify their choice, the employer will deduct taxes based on the new tax regime. Taxpayers can opt for the old tax regime by submitting Form 10-IEA before filing their tax return.

Tax Rates

The basic exemption limit under the new tax regime has been raised to ?3 lakh from ?2.5 lakh. The highest tax rate of 30% will be levied above ?15 lakh income.

Rebate Limit

The rebate under section 87A has been increased to ?25,000 for taxable incomes up to ?7 lakhs.

Standard Deduction

The standard deduction for salaried individuals remains at ?50,000 under both the old and new regimes.

Other Deductions

1. Family Pension Income: Deduction of ?15,000 or 1/3rd of the pension (whichever is lower).
2. Agniveer Corpus Fund: Deduction of the amount paid or deposited under Section 80CCH(2).

No Income Tax for Income up to ?7.5 Lakhs

Taxpayers who choose the new tax regime do not have to pay tax if their income does not exceed ?7 lakhs. This is because the rebate is deducted from the final tax amount, ultimately lowering it to zero. Additionally, owing to a standard deduction of ?50,000 available to all salaried individuals with the new rebate, even taxpayers earning upto ?7.5 lakhs do not have to pay any income tax under the new regime.

Exemption on Leave Encashment

The exemption limit for leave encashment has been raised to ?25 lakhs from the previous ?3 lakhs for non-government employees.

Insurance Plans

Income from life insurance policies with a yearly premium of over ?5 lakhs will be taxable to the policyholder.?

Note: This doesn’t apply to ULIPs (Unit Linked Insurance Plans).

Conclusion

These changes aim to simplify tax planning and provide relief to taxpayers. To learn about more about it, check out our article on Union Budget 2024 Highlights: Key Focus Areas. It is essential for taxpayers to understand these changes and plan their taxes accordingly to minimize their tax liability