Who should switch from old to new tax regime after Budget 2024? Here's the math The new income tax slabs will come into effect retrospectively from April 1, 2024. Now, there may be some individuals who are still paying their taxes under the old tax regime. Does it make sense for them to switch to new tax regime now?
Budget 2024 has given more tax relief in the new tax regime by changing the income tax slabs under it to make it more attractive vis-a-vis the old tax regime. So, should taxpayers who are currently opting for the old tax regime switch to the new tax regime for the current financial year 2024-25?#sr_widget.onDemand p, #stock_pro.onDemand p{font-size: 14px;line-height: 1.28;} .onDemand .live_stock{left:17px;padding:1px 3px 1px 5px;font-size:12px;font-weight:600;line-height:18px;top:9px} #sr_widget.onDemand .sr_desc{margin:0 auto 0;} #sr_widget.onDemand .sr_desc{color: #024d99;margin-top:10px;} #sr_widget.onDemand .crypto .live_stock .lb-icon{8px 6px 5px 3px !important} #sr_widget.crypto.onDemand a.text{border-bottom:1px solid #ccc;padding-bottom:5px;display:block;width:100%} #sr_widget.onDemand .sr_desc .text p, #stock_pro.onDemand .sr_desc .text p{font-size:12px;font-weight:400;}
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The answer for each taxpayer depends on the amount of deductions that he/she needs to claim in order that tax payable under the old regime is lower than that under the new regime. This level of deductions varies with income levels. Below is a table showing the level/amount of deductions at multiple income levels that need to be claimed in the old tax regime for tax payable to be equal in both regimes.
Obviously, if the amount of deductions a taxpayer can claim at a given income level in current FY is more than the break-even level shown in the table then the old regime is still beneficial for him/her. If the deductions are less than the break-even level, then the new regime becomes beneficial.
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More NewsThe change in income tax slabs under the new tax regime in Budget 2024 has increased the minimum deduction amount that must be claimed to remain tax neutral in both the tax regimes.
Here are the minimum deductions - can be called the break-even levels - that must be claimed in the old tax regime for different income levels to pay same tax in both the tax regimes.
Gross income level (In Rs)
Minimum deductions that must be claimed in old tax regime
Tax payable in Old Regime
Tax payable in proposed New Regime
At 7.75 lakhs
3,25,000
-
-
At 10 lakhs
3,50,000
44,200
44,200
At 12.5 lakhs
4,31,250
79,300
79,300
At 15.75 lakhs
4,83,333
1,45,600
1,45,600
At 20 lakhs
4,83,333
2,78,200
2,78,200
Source: EY India
For the purpose of tax calculation, only standard deduction of Rs 75,000 (as proposed in Budget 2024) is taken into account under the proposed new tax regime. On the other hand, in the old tax regime, standard deduction of Rs 50,000 (as mentioned under the income tax laws) is taken into account. The balance deductions (i.e., in addition to standard deduction of Rs 50,000) can be other deductions that the taxpayer is eligible to claim. This includes HRA tax exemption, LTA tax exemption, Section 80C, Deduction on NPS investment of Rs 50,000, Section 80D deduction and so on.
For instance, for income of Rs 10 lakh, the minimum/break-even level of deduction is Rs 3.5 lakh which includes standard deduction of Rs 50,000 and other deductions of Rs 3 lakh which can be an aggregate of deductions such as HRA tax exemption, Section 80C etc.
Taxpayers need to claim more than the minimum deduction amount to pay less tax in the old tax regime vis-à-vis new tax regime. If the deductions amount claimed is less than the minimum amount required, then the new tax regime is more beneficial than the old tax regime.
It can be seen that the minimum deduction that must be claimed in the old tax regime increases as the income level increases. However, once the income level crosses the threshold of Rs 15.75 lakh, the minimum deduction remains the same for higher income levels.
Prior to the changes made in the income tax slabs under the new tax regime, a salaried individual was required to claim minimum deduction of Rs 4.25 lakh in old tax regime for income of Rs 20 lakh to be tax neutral between both regimes. Now, this minimum deduction limit has increased to Rs 4,83,333. There is an increase of Rs 58,333 in the amount of deductions to be claimed to remain tax neutral between both the tax regimes, post Budget proposals.
Remember there has been no change in the income tax rules, slabs, and rates under the old tax regime. The changes in the income tax rules are proposed in the new tax regime. The changes proposed under the new tax regime are as follows:
a) Changes in the income tax slabs under the new tax regime
b) Standard deduction limit hiked to Rs 75,000 from Rs 50,000 - an increase of Rs 25,000
c) Standard deduction available to family pensioners hiked to Rs 25,000 from Rs 15,000 - an increase of Rs 10,000
d) Deduction on employer's NPS contribution to employee's account hiked to 14% from 10% earlier.
Those opting for the new tax regime will now benefit more due to change in the income tax slabs.
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This story originally appeared on: India Times - Author:Faqs of Insurances
