To help the middle class financially, Finance Minister Nirmala Sitharaman has revealed some significant changes to the Union Budget for 2024–2025. The tax slabs have experienced a little alteration under the streamlined New Tax Regime (NTR), and the standard deduction has been raised from Rs 50,000 to Rs 75,000. Individual taxpayers under the NTR are expected to receive annual tax benefits of up to Rs 17,500 as a result of these adjustments.
Image Credits: Mint (Nirmala Sitharaman)
Significant Savings for High-Income Taxpayers
Due to these adjustments, taxpayers in the highest tax bracket—those with taxable incomes of at least Rs 15 lakh—will experience significant savings. They will save Rs 7,500 just by having the standard deduction limit increased. They would save an additional Rs 10,000 as a result of the rate rationalisation, for a total savings of Rs 17,500. High incomes will probably appreciate this development, which will provide them more disposable cash.
Adjustments to Tax Slabs
Relief at different income levels is intended to be provided by the NTR’s modifications to the tax slabs. Income tax was previously levied at a rate of 5% on individuals whose taxable income fell between Rs 3-6 lakh. This slab has now been expanded to Rs 3-7 lakh by the Finance Minister. The 10% tax rate slab has also been changed, going from Rs 6-9 lakh to Rs 7-10 lakh. The 15% tax rate slab was previously Rs 9–12 lakh, however it is now Rs 10–12 lakh. The purpose of these modifications is to lessen middle-class taxpayers’ tax burden and simplify the tax code.
A Push Towards the New Tax Regime
The NTR is meant to be easier to use and exempt from some taxes; the government has been actively pushing taxpayers to switch to it. The recent changes provide salaried taxpayers with even more benefits. The NTR is more alluring because of the extra savings it offers, even though the Old Tax Regime (OTR) stays the same. It is clear that the government wants to simplify the income tax system, and these adjustments are a part of a larger initiative to increase the revenue base.
Growing Popularity of the New Tax Regime
It appears that the NTR promotion is having an impact. About 70% of the four crore taxpayers who filed income tax returns for the fiscal year 2023–24, according to Revenue Secretary Sanjay Malhotra, chose the NTR. This implies that taxpayers are responding favorably to government initiatives to make the NTR more profitable than the OTR.
Comparative Analysis: NTR vs. OTR
After utilizing all allowable deductions, a thorough comparison shows that the most recent changes to the NTR have significantly reduced the tax liability compared to what is paid under the OTR. When a person with a taxable income of Rs 15 lakh uses the OTR to claim the maximum deduction of Rs 4.75 lakh, their tax liability comes to Rs 111,800. Prior to the NTR (2023–24), the tax expenditure increased by Rs 33,800. However, the tax outlay under the NTR will now only increase by Rs 18,200 as a result of the recently announced amendments. The taxpayer will save Rs 2,600 in the NTR if the deductions allowed are restricted to Rs 4 lakh under the OTR.
Conclusion
The recent budget proposals have significantly altered India’s tax system, with middle-class and upper-class taxpayers benefiting most. The purpose of the NTR’s tax slab changes and standard deduction improvements is to incentivize more taxpayers to migrate to the simplified regime by offering financial assistance. These adjustments are an important first step in the government’s ongoing goal of streamlining the tax code. The NTR’s increasing popularity suggests that these initiatives are having an impact and will eventually lead to a larger revenue base and a more efficient tax system.
