Budget 2024: Government Sweetens the Deal for New Tax Regime

The Union Budget 2024 has sparked discussions with its clear push towards the New Tax Regime, making it more appealing for taxpayers across the board.

Last year we saw a significant move when the income threshold for a rebate under Section 87A was raised from ₹5 lakh to ₹7 lakh. Additionally, the tax rebate for those opting for the New Tax Regime increased from ₹12,500 to ₹25,000.

Now, the Finance Minister has proposed further changes aimed at sweetening the deal for those looking to choose the New Tax Regime. For instance, salaried individuals and retired persons currently enjoy a fixed standard deduction of ₹50,000 against their taxable income. However, this has been raised to ₹75,000 for those who opt for the new regime.

Another change is in the deductions regarding the National Pension System (NPS). While the contribution from employers has been limited to 10% of the salary for most employees, the government plans to raise this limit to 14% for all employees to make the New Tax Regime even more attractive.

It’s worth noting that, although the government is increasing the percentage limit on employer contributions, the overall limit for contributions—set at ₹7.50 lakh—stays the same. Anything above this will be treated as taxable income.

For those receiving a family pension, the deduction has also seen an enhancement. Previously capped at ₹15,000, families opting for the New Tax Regime can now claim up to ₹25,000 as a standard deduction.

Along with these tweaks, the Finance Minister introduced changes in tax slabs and rates under the New Tax Regime starting this financial year. The new tax slabs offer various rates starting at 0% for income up to ₹3 lakhs, incrementally increasing to 30% for income over ₹15 lakhs.

While the government is clearly trying to encourage more taxpayers to opt for the new regime, there are still benefits tied to the Old Tax Regime that some might not want to give up. For example, deductions for house rent allowance, leave travel concession, and home loan benefits can still make the Old Tax Regime more attractive for many, especially younger individuals.