Standard Deduction Limit in New Tax Regime Raised

Mumbai: The Union Budget 2024-25 presented on Tuesday revised the tax slab rates and the standard deduction for the individuals under the new tax regime but did not make any changes in the old tax regime indicating that the government maybe focused on making the new tax regime the standard, perhaps scrapping the old tax regime in near future.

A reduction in the tax rate and increase in the standard deduction from Rs 50,000 to Rs 75,000 now will lead to a tax saving of Rs 10,400 for those with an annual salary of Rs 10 lakh and a maximum saving of Rs 18200 for those with an annual taxable income of Rs 20 lakh and above.

The revised scheme maintains the income exemption up to Rs 3 lakh but modifies subsequent tax slabs. The Rs 3 lakh to Rs 6 lakh slab is now enhanced to Rs 7 lakh. The third slab extends from Rs 7 lakh to Rs 10 lakh, up from from the earlier Rs 9 lakh. The fourth slab now covers Rs 10 lakh to Rs 12 lakh, up from Rs 9 lakh to Rs 12 lakh. The remaining slabs remain unchanged.

An additional deduction of 4 per cent of basic salary is provided towards the employer’s contribution to the National Pension Scheme for employees who have opted for the new tax regime.

“An individual with a basic salary plus DA of Rs one lakh per month may now be eligible to claim an additional deduction of Rs 4,000 per month or Rs 48,000 per annum for employer’s contribution to NPS and save annual tax of Rs 14,976,” said Preeti Sharma, partner, global employer services, tax and regulatory services, BDO India.

“If you have a home loan, you should compute the tax savings in both the old and new regimes and opt for the one that is beneficial,” said Anil Rego, founder and CEO, of Right Horizons.

Finance minister said a comprehensive review of the Income Tax Act will be taken up to make it concise and reduce disputes. A beginning is being made by simplifying the tax regime for charities, TDS rate structure, provisions for reassessment and search provisions.