Exploring the Impact of the Revised Income Tax Regime and Increased Standard Deductions on Middle-Class Finances
In Short:
- Standard deduction increased from Rs 50,000 to Rs 75,000
- Revised tax slabs offer more savings for salaried employees
- Tax exemptions on income up to Rs 7.75 lakhs
- Higher tax bracket taxpayers save up to Rs 17,500
- Increased tax deduction on family pensions
Finance Minister Nirmala Sitharaman announced major changes to the income tax regime in the Union Budget for 2024-25, bringing significant relief to taxpayers. This new budget aims to offer substantial savings, particularly for the middle class and salaried employees.
Key Changes in the Income Tax Regime
The standard deduction limit has been raised from Rs 50,000 to Rs 75,000. This change means that salaried employees can now save more on their taxable income. For those in the highest tax bracket, this increased deduction results in savings of Rs 7,500 annually.
Revised Tax Slabs:
The new tax regime has revised the tax slabs to offer more savings. Here’s a breakdown:
- Rs 0-3 lakh: Nil
- Rs 3-7 lakh: 5%
- Rs 7-10 lakh: 10%
- Rs 10-12 lakh: 15%
- Rs 12-15 lakh: 20%
- Above Rs 15 lakh: 30%
According to Ernst & Young (EY), individuals with an income of up to Rs 7.75 lakhs will be exempt from paying taxes. For those earning up to Rs 10 lakhs, the potential saving is Rs 10,000 before cess, with the total benefit increasing after cess is applied.
Tax Savings:
The combination of the increased standard deduction and rationalised tax rates leads to significant tax savings:
- Salaried employees: Up to Rs 17,500 annually
- Higher tax bracket (Rs 15 lakh+): Total savings of Rs 17,500
Other Notable Changes
Family Pension Deduction:
The tax deduction on family pensions has been increased from Rs 15,000 to Rs 25,000, providing additional relief to pensioners.
No Changes to the Old Tax Regime
Sitharaman confirmed that there are no current changes to the Old Tax Regime, which continues to offer various deductions and exemptions, including for house rent, leave travel allowances, and sections like 80C, 80D, and 80CCD. The basic exemption limits remain at Rs 2.5 lakh for individuals below 60, Rs 3 lakh for senior citizens (60-80 years), and Rs 5 lakh for super senior citizens (80+ years).
In conclusion, Nirmala Sitharaman’s latest budget introduces significant relief measures aimed at reducing the tax burden on the middle class, particularly through increased standard deductions and revised tax slabs. These changes are part of the government’s broader goal to simplify the tax system and provide more savings for taxpayers.