Budget 2024: Why New Tax Regime might be Better for You?

The new income-tax regime has improved and now offers more benefits than before. After the Budget 2024 by Finance Minister Nirmala Sitharaman, more taxpayers are likely to switch to the new, simpler regime.

Key Improvements in the New Regime

1. Income Tax Slabs: Tax slabs have been made more generous.

2. Standard Deduction: Standard deduction has increased from Rs.50000 to Rs.75,000.

Most salaried employees will benefit more from the new regime. This is unless they have large deductions on home loan interest or house rent allowance (HRA). Without these big deductions. the old regime isn’t as beneficial.

When the Old Regime Is Better?

The old tax regime is still good for people with high tax deductions. For example, if a salaried employee with an income of Rs.11 lakh claims deductions totalling more than Rs.3,93,750, the tax liability would be lower under the old tax regime. Now, it is arguable whether someone with a salary of Rs.11 lakh can claim this level of deduction. However, a couple with two incomes may be able to afford larger deductions.

Individuals with an income of Rs.60 lakh will also find the old regime suitable if they claim deductions totalling more than Rs.3,93,750.

Benefits of the New Regime

1. Low Earners: People earning less than Rs.7 lakh can get a rebate reducing their tax to zero. Salaried employees earning up to Rs.7.75 lakh also won’t pay any tax in the new tax regime. The reason is the increment in the standard deduction.

2. High Earners: High-income earners, like someone making Rs.6 crore will have a lower tax burden in the new regime as the surcharge rate is 39% while compared to the old regime the surcharge rate is 42.74% for those earning over Rs.5 crore. The new regime is also easier with less paperwork. Making it a better choice for many people.

Example:

Here’s a simple way to see the difference –

• Old Regime – Better for those with many deductions, this includes home loan interest or HRA.
• New Regime – Better for low earners who get rebates and also for high earners with lower surcharge rates.

By examining your income and deductions in both regimes, decide which tax regime is optimal for you.