Finance Minister Nirmala Sitharaman tweaked India’s income tax structure in her July 23, 2024, budget, adjusting two slabs under the new tax regime. While no alterations were made in the interim budget earlier this year, these updates impact taxpayers for the financial year 2024-25. Here’s what changed and how it affects taxpayers.
Two Tax Slabs Get a Lift
The finance minister announced an increase in the upper limits of two income tax slabs under the new regime. The adjustment provides some relief to taxpayers, particularly those earning between Rs 6 lakh and Rs 10 lakh annually.
- The earlier Rs 3 lakh-Rs 6 lakh slab now extends up to Rs 7 lakh.
- The Rs 6 lakh-Rs 9 lakh slab was pushed to Rs 7 lakh-Rs 10 lakh.
This effectively means a reduced tax burden for certain income groups:
- People earning between Rs 6 lakh and Rs 7 lakh now fall under the 5% tax bracket instead of the earlier 10%.
- Those making between Rs 9 lakh and Rs 10 lakh will be taxed at 10% instead of 15%.
These changes make the new tax regime more attractive, especially for the middle-income group.
New vs. Old Tax Regime: What’s Different?
The government has been promoting the new tax system as the default option. However, the old tax regime remains an alternative, particularly for those who rely on exemptions and deductions.
Here’s how the slabs look now under both systems:
New Tax Regime (FY 2024-25)
| Total Income (Rs) | Tax Rate (%) |
|---|---|
| Up to Rs 3,00,000 | NIL |
| Rs 3,00,001 – 7,00,000 | 5% |
| Rs 7,00,001 – 10,00,000 | 10% |
| Rs 10,00,001 – 12,00,000 | 15% |
| Rs 12,00,001 – 15,00,000 | 20% |
| Above Rs 15,00,000 | 30% |
Old Tax Regime
| Total Income (Rs) | Tax Rate (%) |
|---|---|
| Up to Rs 2,50,000 | NIL |
| Rs 2,50,001 – 5,00,000 | 5% |
| Rs 5,00,001 – 10,00,000 | 20% |
| Above Rs 10,00,000 | 30% |
Unlike the new tax regime, the old system allows taxpayers to claim deductions under various sections like 80C, 80D, and HRA exemptions. The new regime, however, offers a simpler, deduction-free structure with lower tax rates.
Rebates and Surcharges: No Big Changes
One of the key benefits of the new tax system is the rebate under Section 87A. Taxpayers with taxable incomes up to Rs 7 lakh are eligible for a rebate of up to Rs 25,000, making their effective tax liability nil.
For high-income earners, however, the surcharge structure remains unchanged. Those earning more than Rs 2 crore continue to pay the same surcharges as before. The absence of any relaxation in this area means that ultra-high-net-worth individuals still bear a significant tax burden.
New Tax Regime Gains Popularity
The government’s efforts to push the new tax regime seem to be working. By August 2024, official data showed that out of 7.28 crore Income Tax Returns (ITRs) filed for the assessment year 2024-25, around 5.27 crore taxpayers opted for the new system.
This means nearly 72% of taxpayers chose the new regime, indicating a shift toward its simpler, exemption-free structure. The government’s move to make this system the default option has further driven its adoption.
Yet, the old tax regime remains relevant for specific groups, particularly senior citizens and individuals who claim multiple deductions. Taxpayers still have the flexibility to pick the system that works best for them.
