Staying updated with the latest developments is crucial for every taxpayer in the ever-evolving landscape of income taxation. The financial year 2024–25 introduces significant changes to India’s income tax framework, impacting individuals, businesses, and professionals alike. This article examines the key aspects of the revised tax regime, addresses common questions, and explains the updated tax slabs, deductions, and other important provisions. Understanding these changes will help taxpayers make informed decisions and plan their finances more effectively under the new regime. Auriga Accounting pvt. ltd. experts are available to assist with accurate and hassle-free tax return filing, ensuring full compliance and peace of mind.
Old and New Tax Regimes in India
In India, taxpayers can choose between two income tax systems when filing their returns: the Old Tax Regime and the New Tax Regime. Each regime offers distinct benefits, depending on an individual’s income structure, investments, and deductions. A clear understanding of both helps taxpayers select the most suitable option.
Old Tax Regime
The Old Tax Regime, also known as the traditional tax system, allows taxpayers to claim a wide range of deductions and exemptions. These include deductions under Section 80C for investments such as provident fund contributions, life insurance premiums, and home loan principal repayments. Additional exemptions are available for House Rent Allowance (HRA), Leave Travel Allowance (LTA), and other benefits.
Although the tax rates under this regime are higher, the availability of multiple deductions and exemptions can significantly reduce taxable income, often resulting in a lower overall tax liability for those with planned investments and expenses.
New Tax Regime
Introduced in the Union Budget 2020 and effective from FY 2020–21, the New Tax Regime offers lower tax rates but removes most deductions and exemptions available under the old system. The primary objective of this regime is to simplify tax compliance by minimizing documentation and reducing reliance on tax-saving investments.
While it offers less flexibility in claiming deductions, the New Tax Regime provides a more straightforward tax structure, especially beneficial for individuals with limited exemptions or deductions.
Advantages of the New Tax Regime
The New Tax Regime comes with several notable benefits:
Simplified Documentation: No need to maintain rent receipts, travel bills, or investment proofs.
Easier Tax Planning: Reduced complexity due to fewer deductions and exemptions.
Higher Basic Exemption Limit: Increased from ₹2.5 lakh to ₹3 lakh.
Stable Highest Tax Rate: The 30% tax rate applies only to income exceeding ₹15 lakh, aiding long-term financial planning.
New Tax Regime as the Default Option
From FY 2023–24 onwards, the New Tax Regime has been made the default tax system. Taxpayers are automatically assessed under this regime unless they explicitly opt for the Old Tax Regime while filing their return.
Income Tax Slabs Under the New Tax Regime (FY 2023–24 / AY 2024–25)
| Income Range | Tax Rate |
|---|---|
| Up to ₹3,00,000 | Nil |
| ₹3,00,001 – ₹6,00,000 | 5% |
| ₹6,00,001 – ₹9,00,000 | 10% |
| ₹9,00,001 – ₹12,00,000 | 15% |
| ₹12,00,001 – ₹15,00,000 | 20% |
| Above ₹15,00,000 | 30% |
These rates remain unchanged as per the Interim Budget 2024.
Union Budget 2025: Revised Income Tax Slabs
The Union Budget 2025 introduced a revised slab structure under the New Tax Regime to benefit a wider range of taxpayers:
| Income Range | Tax Rate |
|---|---|
| ₹0 – ₹4 lakh | Nil |
| ₹4 – ₹8 lakh | 5% |
| ₹8 – ₹12 lakh | 10% |
| ₹12 – ₹16 lakh | 15% |
| ₹16 – ₹20 lakh | 20% |
| ₹20 – ₹24 lakh | 25% |
| Above ₹24 lakh | 30% |
Changes in Surcharge Rates
Reduced Surcharge: For individuals earning over ₹5 crore, the surcharge rate has been reduced from 37% to 25% under the New Tax Regime.
Applicability: This benefit applies only to those opting for the New Tax Regime.
| Taxable Income | Surcharge (Before Budget 2023) | Surcharge (After Budget 2023) |
|---|---|---|
| Up to ₹50 lakh | 0% | 0% |
| ₹50 lakh – ₹1 crore | 10% | 10% |
| ₹1 crore – ₹2 crore | 15% | 15% |
| ₹2 crore – ₹5 crore | 25% | 25% |
| Above ₹5 crore | 37% | 25% |
Change in the Tax Rebate Limit and Exemptions
The introduction of the new tax regime has significantly revised the tax rebate structure:
Revised Rebate Limit under the New Tax Regime
Under the old tax regime, taxpayers with income up to ₹5 lakh were eligible for a rebate of ₹12,500. In contrast, the new tax regime extends this benefit to individuals earning up to ₹7 lakh, allowing them to claim a full rebate that effectively reduces their income tax liability to zero. As a result, taxpayers within this income bracket are completely exempt from paying income tax under the new regime.
Expansion of the Tax-Free Income Threshold
In addition to increasing the rebate amount, the budget also raised the eligibility limit from ₹5 lakh to ₹7 lakh under the new tax regime. The Section 87A rebate, which applies under both the old and new regimes, ensures continued tax relief for lower-income individuals. This enhancement reduces the tax burden on those earning up to ₹7 lakh and makes the new tax regime more appealing to a wider group of taxpayers.
Exemption on Leave Encashment Under the New Tax Regime
In the Union Budget 2023, the government significantly enhanced the tax exemption on leave encashment under the new tax regime. For non-government employees, the exemption limit was increased eightfold—from ₹3 lakh to ₹25 lakh. Accordingly, any leave encashment received at the time of retirement up to ₹25 lakh is fully exempt from tax under Section 10(10AA) of the Income Tax Act.
Deductions Under the New Tax Regime
The standard deduction for salaried individuals continues to remain ₹50,000 under both the old and new tax regimes.
Additional Deductions Available Under the New Regime
The new tax regime now offers several important deductions, including:
Family Pension Deduction: A deduction of ₹15,000 or one-third of the family pension received (whichever is lower) is allowed.
Agniveer Corpus Fund Deduction: Contributions made to the Agniveer Corpus Fund are eligible for deduction under Section 80CCH(2).
Interest on Home Loan for Let-Out Property (Section 24(b)): Taxpayers can claim a deduction for interest paid on a home loan for a let-out property without any upper limit.
Employer’s Contribution to NPS: Employer contributions to the National Pension System (NPS) are deductible, offering additional tax benefits to employees.
Why No Income Tax Is Payable on Income up to ₹7 Lakhs
Under the new tax regime introduced in Budget 2023, a substantial rebate ensures zero tax liability for individuals with annual income up to ₹7 lakh. Here’s how it works:
Tax Calculation: Tax is first computed based on the applicable slab rates.
Rebate Application: A rebate is then applied to the calculated tax amount.
Zero Tax Outcome: For taxpayers earning up to ₹7 lakh, the rebate fully offsets the tax payable, resulting in no income tax liability under the new regime.
Role of the Standard Deduction
The standard deduction of ₹50,000 for salaried individuals further enhances this benefit. With this deduction, a salaried person earning up to ₹7.5 lakh can reduce their taxable income to ₹7 lakh and thereby pay zero tax under the new tax regime.
Switching Between the Old and New Tax Regimes
Taxpayers have the flexibility to choose between the old and new tax regimes, though the frequency of switching depends on the nature of income:
Business or Professional Income: Taxpayers can switch between regimes only once. After exercising this option, the choice becomes irrevocable for such income.
Salary or Other Non-Business Income: Taxpayers can switch between the old and new regimes every financial year, allowing greater flexibility in tax planning.
Switching Back to the Old Tax Regime
From FY 2023–24 onwards, the new tax regime is the default option. If you wish to opt for the old tax regime:
You must file Form 10-IEA while submitting your income tax return.
For business or professional income, switching back to the old regime is allowed only once and is final.
For salaried or other non-business income, you can choose the old regime each year if it is more beneficial.
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