In the Budget for 2024-25, Finance Minister has made the ‘new regime’ of personal income tax more appealing, while continuing to rationalise the capital gains tax structure
In the Union Budget for 2024-25, Finance Minister Nirmala Sitharaman has endeavoured to make the ‘new regime’ of personal income tax (PIT) a bit more attractive besides continuing the process of ‘rationalising’ and ‘simplifying’ the structure of capital gains tax (CGT) that was started in her budget for FY 2023-24. Sitharaman had introduced the new PIT regime in the Budget for 2020-21. Even while retaining a 5 per cent tax for annual income in the Rs 250,001-Rs 500,000 range (as under the old regime before 2020-21), on income higher than Rs 500,000, the government levied: 10 per cent on Rs 500,001-Rs 750,000; 15 per cent on Rs 750,001-Rs 1,000,000; 20 per cent on Rs 1,000,001-Rs 1,250,000; 25 per cent on Rs 1,250,001-Rs 1,500,000. For income above Rs 1,500,000, the 30 per cent tax continued. Unlike the old regime where persons could claim annual exemptions and deductions on long-term investments up to a maximum of Rs 375,000, none was allowed under the new regime.
However, individuals were given the choice to go either for the new regime or continue with the old regime. In the Budget for 2023-24, she altered the tax new structure to provide for nil tax on income up to Rs 300,000; 5 per cent tax on income in the Rs 300,001-Rs 600,000 bracket; 10 per cent in the Rs 600,001-Rs 900,000 bracket; 15 per cent in Rs 900,001-Rs 1,200,000; 20 per cent in Rs 1,200,001-1,500,000; and 30 per cent on above Rs 1,500,000. Besides, salaried persons and pensioners can also claim a standard deduction of Rs 50,000.This was much better than the 2020-21 package. Under it, a person with an annual income of say Rs 1,500,000 needs to pay Rs 140,000 as tax when compared to Rs 150,000 payable under the old regime albeit with tax breaks. Besides, the former left the person with cash-in-hand of Rs 1,360,000 against only Rs 975,000 under the old regime (after paying tax Rs 150,000 and investment Rs 375,000). Furthermore, under the new (modified) regime a salaried person won’t have to pay any tax on annual income up to Rs 750,000.In the Budget for 2024-25, the FM has further tweaked the slabs to provide for nil tax on income up to Rs 300,000; 5 per cent tax on income in the Rs 300,001- Rs 700,000 bracket; 10 per cent in the Rs 700,001-Rs 1000,000 brackets; 15 per cent in Rs 1000,001- Rs 1,200,000; 20 per cent in Rs 1,200,001-1,500,000; and 30 per cent on above Rs 1,500,000. Besides, salaried persons and pensioners can now claim a standard deduction of Rs 75,000.For a person with an annual income of Rs 1,500,000, these changes will yield an incremental savings of Rs 15,000 over the tax payable as per the 2023-24 budget. She will need to pay only Rs 125,000 as tax. Moreover, a salaried person won’t have to pay any tax on annual income up to Rs 825,000 up from Rs 750,000 earlier. Already, nearly two-thirds of those filing IT returns have shifted to the new tax regime.