Jul 24, 2024 07:10 AM IST
The Budget 2024 saw Centre push for more individuals to opt for the simplified new tax regime, which can be beneficial for those with a lower income slab.
Union finance minister Nirmala Sitharaman on Tuesday presented the Budget 2024-25 in Parliament, making announcements offering improved benefits to those who opt for the new tax regime. However, people with higher incomes and higher tax deductions may find the incentives offered by the old tax regime more attractive in the longer run.
Under the new and simplified tax regime, Nirmala Sitharaman liberalised the income tax slabs, and hiked the standard deduction from ₹50,000 to ₹75,000. In view of the new revisions, salaries individuals would be better off switching to the new tax regime amid the government’s push.
However, if one is claiming deductions of up to ₹2 lakh on home loan interest or are eligible for hefty house rent allowance (HRA), the old tax regime makes much more sense.
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Old tax regime better for higher deductions
For instance, if a salaried employee has an income of ₹11 lakh, and claims deductions of over ₹3,93,750, their outgo will be lower under the old tax regime. While it is at times unlikely that an individual with ₹11 lakh income can claim such a high level of deduction, the same can be claimed by a couple with a double income.
The old regime will be more suitable for a person with an income of around ₹60 lakh if they claim deductions worth more than ₹3,93,750. However, for people with income up to around ₹7.75 lakh, the new and simplified tax regime will be far more beneficial.
The old tax regime will be more ideal for people with income of over ₹10 lakh since it offers flexibility on deductions, leading to more savings for high-income individuals.
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New tax regime for low-income salaried employees
For the middle class, the finance minister raised the standard deduction — a flat deduction from the total salary earned by an employee in a year before calculating the applicable income tax rate — by 50 per cent to ₹75,000 and tweaked tax slabs for taxpayers opting for the new income tax regime.
For those who earn less than ₹7 lakh, the new tax regime can bring down their tax outgo to zero. A salaried employee earning up to ₹7.75 lakh will not have to pay any taxes at all under the new tax regime, due to the higher deduction of ₹75,000.
When it comes to people with a significantly higher income, say ₹6 crore, the new and simplified tax regime will be more beneficial. The tax payable on this income will be lower as the surcharge rate is lower than that of the old regime, at 39 percent.
In summation, for those with a higher deduction with a fairly high income are expected to favour the old tax regime, while those with an income of up to ₹7 lakh, and over ₹5-6 crore are expected to favour the simplified regime.
