As seen by numerous initiatives to make the New Tax Regime more alluring to taxpayers, the Union Budget 2024 supports the government's policy of seeming preference for it over the former one.
The government's advocacy for the New Tax Regime was made clear by the increase in the income threshold of ₹5 lakh to ₹7 lakh last year, which qualified a person for a rebate under Section 87A. The tax rebate for individuals who choose the New Tax Regime was also increased, from Rs. 12,500 to Rs. 25,000. Additionally, a specific provision for marginal relief was added in the event that the New Tax Regime's threshold limit for taxable income was surpassed. A sneak peak at some of the changes the finance minister suggested to improve the appeal of the New Tax Regime in Budget 2024.
Higher Standard deduction for salaried employees:
Under both tax systems, a set standard deduction of ₹50,000/-is provided to salaried and retired individuals against their taxable wages and pensions. If you want to use the New Tax Regime, the finance minister has suggested a greater standard deduction of Rs. 75,000/-from your income from pay or pension. The standard deduction under the Old Tax Regime would stay at Rs. 50,000 for those who choose it.
Higher deduction for employer’s contribution toward your NPS (National Pension System)
Your income is increased by the employer's payment to your NPS account under the current tax structure. Under both tax systems, the same is then permitted as a deduction under Section 80CCD(2). Up to 14% of their pay may be deducted by Central Government employees for their employer's NPS account contribution. For others, the deduction is limited to a maximum of 10% of their pay. In order to increase the allure of the new tax regime for salaried workers, the government has suggested raising the employer contribution cap from 10% to 14% of the total wage for all employee categories.
Please be aware that although the finance minister has suggested raising the percentage cap on the employer's contribution to your NPS account, there is still a Rs. 7.50 lakh upper limit that will result in taxes on the employer's contribution to your NPS, Provident Fund, and superannuation combined. It comes before the total limit and is considered your precondition.
Enhanced deduction for family pension
As of right now, you can deduct up to Rs. 15,000 as a standard deduction, or one-third of the family pension you received. If you select the New Tax Regime, this has been increased to a maximum of Rs. 25,000. This shouldn't have a big influence on someone's decision between the Old and New Tax Regimes, in my opinion.
Revised rates and slabs
Beginning with the current fiscal year, the finance minister has suggested making a few adjustments to the tax rates and slabs under the New Tax Regime.
Present income slabs and rates
Proposed slabs and rates
Over 15 lakhs 30%
Therefore, it is clear that the government is attempting to persuade the salaried class to choose the new tax structure. For people in lower tax brackets who don't have extra money to invest and qualify for a variety of investment-related deductions, the new tax structure becomes highly alluring.
However, taking into account the advantages and deductions that a salaried individual must give up when choosing the New Tax Regime—such as the Leave Travel Concession, House Rent Allowance, deduction under Sections 80C and 80D, and tax benefits for home loans—the old tax regime is generally preferable, particularly for the younger population who are either renting or paying off a home loan.
