Union Budget 2024: Finance Minister Nirmala Sitharaman had made many changes in the new income tax regime in the budget last year. Its purpose was to increase its attraction. Tax rates are low in the new income tax regime, but deductions and exemptions are not available.
Interim Budget 2024 :
Finance Minister Nirmala Sitharaman had made many changes in the new income tax regime in last year’s budget. Its purpose is to make the new income tax regime attractive. Taxpayers had not shown much interest in the new regime since its introduction in 2020. Taxpayers have been more interested in the old income tax regime. While announcing the new regime in 2020, the government had said that taxpayers will have the option to use the new and old regime. He can choose either of the two. But, due to the new regime not getting much response from taxpayers, the Finance Minister had announced many changes in the budget presented on February 1, 2023.
Changes were made in the new regime in Budget 2023 :
Finance Minister Nirmala Sitharaman had also announced the benefit of standard deduction of Rs 50,000 in the new regime. He had increased the rebate on annual income up to Rs 7 lakh in the new regime, due to which the taxable liability of the taxpayers was reduced to zero. Earlier the annual income limit for rebate was Rs 5 lakh. In the new regime, he had increased the limit of base tax exemption from Rs 2.5 lakh to Rs 3 lakh. Most importantly, he had announced to make the new income tax regime the default regime. The government believed that these changes would increase the interest of taxpayers in the new regime.
Deduction and exemption in old regime :
The biggest difference between the new and old regime of income tax is in the matter of exemption and deduction. Many types of deductions and exemptions were available in the old regime. This reduces tax liability. The most important among these is the deduction available under Section 80 of the Income Tax Act, 1961. Taxpayers can claim deduction by investing in about a dozen investment instruments under Section 80C. Its limit is fixed at Rs 1.5 lakh in a financial year. Secondly, in the old regime, deduction is available on health policy. Taxpayers below 60 years of age can claim a deduction of Rs 25,000 in a financial year on a health policy for themselves and their family. If a taxpayer buys a health policy for his elderly parents, he can claim a deduction of Rs 50,000.
Deduction on home loan also in old regime :
A big benefit in the old regime is the deduction available on home loan interest. Under Section 24B of the Income Tax Act, deduction of up to Rs 2 lakh can be claimed on home loan interest in a financial year. Deduction on home loan principal is also allowed, but it comes under section 80C. Since Section 80C includes about a dozen instruments, its attractiveness gets reduced. Due to the deduction available on home loan interest, many taxpayers use the old income tax regime.
Tax rate in the new regime :
In the new tax regime, there is no tax on Rs 3 lakh annually. 5% tax is levied on income from Rs 3,00,001 to Rs 6,00,000. 10 percent tax is levied on income from Rs 6,00,0001 to Rs 9,00,000. Rs 9,00,001 to Rs 12,00,000 attract 15 per cent tax. 20% tax is levied on Rs 12,00,001 to Rs 15,00,000. Income above Rs 15,00,000 is taxed at 30 percent.
Tax rate in old regime :
In the old income tax regime, there is no tax on annual income up to Rs 2.5 lakh. The tax is 5 percent on income of Rs 2.5 to 3 lakh. Tax is 5 percent even on income of Rs 3 lakh to Rs 5 lakh. The tax rate on income between Rs 5 lakh to Rs 10 lakh is 20 percent. The tax rate on income above Rs 10 lakh is 30 percent.
Who benefits in the new regime?
Deductions and exemptions are not available in the new income tax regime. But, the tax rates in this are low. This regime is beneficial for those taxpayers who do not invest in instruments covered under the tax savings scheme i.e. Section 80C. Apart from this he has not taken any home loan.