Finance Minister Nirmala Sitharaman, presenting the Budget 2024 in Parliament made two significant announcements for the employed people to make for those opting for the New Tax Regime. First, the standard deduction for salaried employees is proposed to be increased from Rs 50,000 to Rs 75,000. Similarly, deduction on family pension for pensioners is proposed to be enhanced from Rs 15,000 to Rs 25,000. Secondly the FM announced a revised tax structure under the New Tax Regime.
What is the new tax slab under the New Tax Regime?
There will be zero tax on income between Rs 0 to Rs 3 lakh, under the new tax regime. There will be a 5 percent tax on income between Rs 3 to 7 lakh, 10 percent tax on income between Rs 7 to 10 lakh, 15 percent on income between Rs 10 to 12 lakh, 20 percent on income between Rs 12 to 15 lakh and 30 percent tax on income above Rs 15 lakh.
Which tax slab was in place earlier?
Till now, under the new tax regime, income between Rs 0 to Rs 3 lakh was tax-free. There was a 5 percent tax on income between Rs 3 to 6 lakh, 10 percent on income between Rs 6 to 9 lakh, 15 percent on income between Rs 9 to 12 lakh, 20 percent on income between Rs 12 to 15 lakh, and 30 percent tax on income above Rs 15 lakh.
Understanding how the rebate has been reduced by Rs 5000
You used to receive a tax refund of Rs 25,000 under Section 87A of the new tax regime if your total taxable income was less than Rs 7 lakh. There was no tax on your salary till Rs 0-3 lakh. The tax at a 5 percent rate was Rs 15,000 on a salary of Rs 3-6 lakh. On the other hand, the tax at the 10 percent rate was Rs 10,000 on a salary of Rs 6-7 lakh. In this way, you would get a full rebate of Rs 25,000.
Now after the change in the tax slab, your salary up to Rs 3 lakh becomes tax-free. You have a tax liability of Rs 20,000 at the rate of 5% on the slab of Rs 3-7 lakh, on which you would receive a refund under Section 87A. This indicates that the rebate, which was previously Rs. 25,000, is now Rs. 20,000. Thus, the refund you receive under section 87A has decreased due to the change in tax slab.
Will there be any losses for you?
You may be wondering if you would lose out because the change in tax slab will result in a smaller refund. The response is negative. If your taxable income was up to Rs. 7 lakh earlier you would receive a refund of Rs. 25,000; going forward, you will receive a refund of Rs. 20,000. Your salary up to Rs 7 lakh would be tax-free in any case.
Who stands to gain?
Those whose taxable income exceeds Rs 7 lakh will profit from the change in the tax slab. Those whose income exceeds Rs 7 lakh will not be eligible for the 87A rebate. Previously, individuals in this category had to pay a tax of Rs. 25,000 on income up to Rs. 7 lakh. However, now, they will only be required to pay a tax of Rs. 20,000.
