The Union Budget 2024 introduced a series of impactful changes to the Income Tax provisions that will come into effect from April 1, 2024, affecting the Assessment Year 2025-26. These amendments aim to simplify tax planning, enhance benefits for taxpayers, and incentivize savings. Here is an overview of the key amendments and provisions to look out for:
1. Additional Benefits for Taxpayers Opting for the New Regime
With the new tax regime becoming more popular due to its simplicity, the government has increased certain benefits for taxpayers opting for this regime:
Standard Deduction: The standard deduction for salaried individuals has been increased from Rs. 50,000 to Rs. 75,000.
Family Pension Deduction: The deduction limit for family pension has been enhanced from Rs. 15,000 to Rs. 25,000.
Employer’s Contribution under Section 80CCD(2): The limit for employer’s contribution towards National Pension Scheme (NPS) under Section 80CCD(2) has been increased from 10% to 14% of salary and dearness allowance.
2. Benefits of the New Tax Regime
The newly implemented tax regime brings several advantages for taxpayers:
Simplicity in Tax Filing: Taxpayers under the new regime no longer need to maintain a record of travel tickets, rent receipts, or other receipts to claim deductions, simplifying the filing process.
No Need for Complex Tax Planning: The new tax regime eliminates the need for detailed tax planning, such as investment-based deductions, making it easier for salaried individuals to manage their taxes.
Basic Exemption Limit: The basic exemption limit under the new tax regime has been increased from Rs. 2.5 lakhs to Rs. 3 lakhs. This change provides a larger tax-free income for taxpayers.
Higher Income Tax Slabs: The highest tax rate of 30% will now apply only to income exceeding Rs. 15 lakhs under the new tax regime, providing relief to middle-income groups.
3. Changes in Surcharge Rates
The surcharge rate has been reduced under the new tax regime for high-income taxpayers:
- Reduction in Surcharge: The surcharge rate for individuals with income exceeding Rs. 5 Crores has been reduced from 37% to 25%. This applies only to taxpayers who choose the new tax regime.
4. Tax Reforms and Key Amendments (Assessment Year 2025-26)
These changes to the Income Tax provisions are specifically aimed at enhancing the ease of compliance and reducing tax burdens for a wide range of taxpayers. Below is a detailed breakdown of significant changes in the provisions:
| Section/Provision | Current Provisions | Amended Provisions (Effective from April 1, 2024) | Key Impact |
|---|---|---|---|
| Standard Deduction | Rs. 50,000 for salaried individuals | Rs. 75,000 for salaried individuals | Increases the amount of income that can be claimed as deduction, benefiting salaried taxpayers. |
| Family Pension Deduction | Rs. 15,000 | Rs. 25,000 | Higher deduction available for taxpayers receiving family pension. |
| Employer’s Contribution under Section 80CCD(2) | 10% of salary and dearness allowance | 14% of salary and dearness allowance | More favorable contribution limits to encourage savings in NPS. |
| Basic Exemption Limit | Rs. 2.5 lakhs | Rs. 3 lakhs | Larger tax-free income, making the new regime more attractive. |
| Highest Tax Rate (30%) | Income above Rs. 10 lakhs | Income above Rs. 15 lakhs | Higher threshold for applying the highest tax rate, reducing the tax burden for many taxpayers. |
| Surcharge Rate | 37% for income exceeding Rs. 5 crores | 25% for income exceeding Rs. 5 crores (New Tax Regime) | Reduction in surcharge for those with very high income, lowering their overall tax liability. |
5. Clarification on Tax Slabs for the New Regime (Assessment Year 2025-26)
Under the new tax regime, the following revised income tax slabs will apply from April 1, 2024:
| Income Range | Tax Rate |
|---|---|
| Up to Rs. 3,00,000 | Nil (Exempt) |
| Rs. 3,00,001 to Rs. 6,00,000 | 5% |
| Rs. 6,00,001 to Rs. 9,00,000 | 10% |
| Rs. 9,00,001 to Rs. 12,00,000 | 15% |
| Rs. 12,00,001 to Rs. 15,00,000 | 20% |
| Above Rs. 15,00,000 | 30% |
This simplification in the tax slabs, along with the increased basic exemption limit, provides substantial relief for individuals in the lower and middle-income brackets, making the new tax regime an attractive option.
Conclusion
The Income Tax Amendments for Assessment Year 2025-26 focus on simplifying tax compliance and providing substantial relief to taxpayers, especially those opting for the new tax regime. These changes reflect the government’s commitment to promoting ease of living and enhancing financial inclusion. The higher exemption limits, reduced surcharge, and enhanced deductions will benefit both salaried individuals and retirees, making it an opportune time for tax planning.
