Understanding Budget 2024: The New Tax Regime

As we approach the fiscal year 2024-25, Budget 2024 introduces several changes in the tax regime, which can significantly impact individual and corporate taxpayers. This article aims to clarify these changes and provide insights into which regime is more attractive—the New Regime or the Old Regime.

Background and Changes in the New Regime

Two key changes have been proposed in the New Tax Regime:

Revised Tax Slabs

The tax brackets have been revised, making taxpayers question which regime to choose. Understanding the nuances of the new tax slabs is crucial to making the right decision.

Standard Deduction

The standard deduction has been increased from Rs 50,000 to Rs 75,000. This adjustment is designed to benefit taxpayers by reducing their taxable income.

Deciding Between the New and Old Regime

Choosing between the New Regime and the Old Regime involves evaluating two main factors:

Your Total Income

The total income you earn plays a crucial role in determining which regime is more beneficial. For instance, a high-income earner may have more opportunities to claim deductions and exemptions.

Claimable Tax Deductions and Exemptions

The second factor to consider is the tax deductions and exemptions you can claim. The New Regime offers certain advantages, especially if your deductions and exemptions allow you to reduce your taxable income effectively.

An Example to Illustrate the Choice

To better understand the impact of these changes, let’s consider an example. Suppose your total income is Rs 14 lakh.

In the New Regime

After accounting for the Rs 75,000 standard deduction, your taxable income would be Rs 13.25 lakh. At the prevailing tax rates, this would result in a tax outgo of Rs 109,200.

In the Old Regime

To pay less tax in the Old Regime, your total deductions, including the standard deduction, would need to exceed Rs 4.37 lakh. High deductions are usually required to achieve this, and such deductions might be possible if you have a home loan or pay a significant amount in rent and claim HRA (House Rent Allowance).

Conclusion and Next Steps

The choice between the New Regime and the Old Regime ultimately depends on your total deductions and exemptions. If your total deductions are greater than the breakeven limit, the Old Regime is more attractive. If your total deductions are less, the New Regime is more beneficial.

With the revised rates applicable from the current financial year, FY 2024-25, it is essential for taxpayers to carefully evaluate their situations and choose the regime that maximizes their tax benefits.

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