Budget 2024: Tax slab changes, Standard Deduction hike to Rs 75K enhance New Tax Regime’s appeal among taxpayers

As widely expected, Finance Minister Nirmala Sitharaman in her budget speech on Tuesday proposed some changes in the New Tax Regime to enhance its appeal among taxpayers. First, Standard Deduction for salaried employees was proposed to be increased from Rs 50,000 to Rs 75,000, while deduction on family pension for pensioners was increased from Rs 15,000 to Rs 25,000.

Apart from this, tax slabs under the new tax regime were proposed to be simplified, which will encourage more taxpayers to switch from the Old Tax Regime.

Commenting on this, Adhil Shetty, CEO of Bankbazaar.com, said, “The Union Budget 2024-25 has further simplified the tax slabs under the new tax regime, encouraging more taxpayers to switch from the old regime, which still attracts a large percentage due to its wider deductions for various financial investments.”

The revised tax slabs are as follows: those earning Rs 3-7 lakh will pay 5%, while income between Rs 7 lakh and Rs 10 lakh will be taxed at 10%. Similarly, one will have to pay 15% tax on income between Rs 10 lakh and Rs 12 lakh, while income from Rs 12-15 lakh will fall under the 20% tax slab, and those earning above Rs 15 lakh will be taxed at 30%.

Additionally, the standard deduction has been increased, allowing taxpayers to save approximately Rs 17,500 more under the new regime.

“The simplified tax structure aims to make the new tax regime more attractive by reducing complexity and potentially lowering the tax burden for middle-income earners. By setting lower rates for intermediate income brackets, the government is addressing a key concern that has kept many taxpayers in the old regime—its extensive deductions and exemptions,” added Shetty.

It may be noted that the New Tax Regime, introduced in the Budget 2020 with altered tax slabs and concessional tax rates but minimal exemptions and deductions from income, was supposed to herald a new era for India in the field of taxation. However, it failed to take off owing to low interest of taxpayers.

In a bid to increase its adoption rate among taxpayers, several changes were made in this regime in the Budget 2023. For example, the rebate limit was increased to Rs 7 lakh from Rs 5 lakh earlier, and the number of slabs were reduced from 6 to 5, while the tax exemption limit was increased to Rs 3 lakh.

The New Regime was also made the default option. Still, compared to the old regime, the new regime was less popular among taxpayers because of not giving them many options to make tax-saving investments.

Tax experts, therefore, wanted the government to contemplate raising the basic exemption limit in the New Tax Regime from Rs 3 lakh to Rs 5 lakh, and tax rebate from Rs 7 lakh to Rs 8 lakh. They also suggested to impose the 30% tax rate at an income of Rs 20 lakh or Rs 25 lakh, rather than the current Rs 15 lakh, making the tax system more equitable.