Powered by

Home Personal Finance

Govt trying to sell New Tax Regime using new tax sops

Considering the benefits and deductions a salaried person has to forgo, the New Tax Regime is less beneficial for young people, especially those who reside in rented houses or who service home loans.

By Dhanam News Desk
New Update
Govt. promoting new tax regime

Govt is promoting the new tax regime with sops

Listen to this article
0.75x 1x 1.5x
00:00 / 00:00

The Union Budget 2024 endorses the government's policy of an apparent tilt to the New Tax Regime over the previous one, as evident from a slew of efforts to make it a more attractive proposition for taxpayers.

The government's push for the New Tax Regime became evident last year when the income threshold limit for being eligible for a rebate under Section 87A was raised from 5 lakh to 7 lakh. The tax rebate was also raised from Rs. 12,500 to Rs. 25,000 for those opting for the New Tax Regime. Specific provision for marginal relief was also introduced in case the taxable income exceeded the threshold limit in the New Tax Regime.

 In Budget 2024, the Finance Minister proposed amendments to make the New Tax Regime more attractive. Here is a peek into these proposals.

Deduction for salaried employees

Salaried and retired persons are allowed a fixed standard deduction of  50,000 against their taxable salary and pensions under both tax regimes. The Finance Minister has proposed a higher standard deduction of Rs. 75,000 against your salary or pension income if you opt for the New Tax Regime. For those opting for the Old Tax Regime, the standard deduction will remain at Rs. 50,000.

Employer’s contribution toward your NPS 

Under the present taxation scheme, the employer’s contribution towards your NPS account is first added to your income. Then, the same is allowed as a deduction under Section 80CCD(2) under both tax regimes. Central Government employees can claim a deduction of up to 14% of their salary. The maximum deduction is restricted to 10% of the salary for others. To make the new tax regime more attractive for salaried employees, the government has proposed to raise the limit of 10% for employer contributions to 14% of the salary for contributions to the NPS account for all categories of employees.

Please note that though the Finance Minister has proposed to raise the percentage limit in respect of the employer’s contribution towards your NPS account, the overall limit of Rs. 7.50 lakh has not been changed-- beyond which the employer’s contribution towards your NPS, Provident Fund and superannuation taken together will get taxed. After the overall limit, it is treated as your prerequisite.

Deduction for family pension

Presently, you can claim a deduction equal to one-third of the family pension you received, subject to a maximum of Rs. 15,000 as a standard deduction. This has been enhanced to a maximum of Rs. 25,000 provided you opt for the New Tax Regime. 

Revised rates and slabs

The Finance Minister has proposed some tweaks in the tax slabs and rates for the New Tax Regime starting from the current financial year.

Present income slabs and rates

1. 0 to 3 Lakhs 0%

2. 3 to 6 lakhs 5%

3. 6 to 7 Lakhs 10%

4. 7 to 9 Lakhs 10%

5. 9 to 10 Lakhs 15%

6 10 to 12 Lakhs 15%

7. 12 to 15 Lakhs 20%

8. Over 15 lakhs 30%

Proposed slabs and rates

1. 0 to 3 Lakhs 0%

2. 3 to 6 lakhs 5%

3. 6 to 7Lakhs 5%

4. 7 to 9 Lakhs 10%

5. 9 to 10 Lakhs 10%

6. 10 to 12 Lakhs 15%

7. 12 to 15 Lakhs 20%

8. Over 15 lakhs 30%

So, it is apparent that the government is trying to lure the salaried class into opting for the new tax regime. The new tax regime becomes very attractive for those under the lower tax slabs who cannot spare money to invest and are eligible for various investment-based deductions.

However, considering the benefits and deductions that a salaried person has to forgo when opting for the New Tax Regime—like the House Rent Allowance, Leave Travel Concession, deduction under Section 80C and 80D, and tax benefits for home loans—in most cases, the old tax regime is better, especially for the younger lot who are either staying in rented premises or servicing a home loan.

                                                   (By arrangement with livemint.com)