Finance Minister Nirmala Sitharaman has presented the first full-fledged budget of Narendra Modi’s 3.0. and today, it seems that the middle class has won it big enough, with balancing middle-class tax relief along with their economic growth needs. The budget 2025 is introduced when the GDP growth is estimated to fall at the bottom low in four years. It is 6.4% in FY24.
The income tax slabs under the New tax regime include:
Up to 4,00,000- 0%
4,00,001 to 8,00,000- 5%
8,00,001 to 12,00,000- 10%
12,00,001 to 16,00,000- 15%
16,00,001 to 20,00,000- 20%
20,00,001 to 24,00,000- 24%
Above 24,00,001- 30%
The new tax regime also has 5 income tax slabs as before. As mentioned above, the new tax regime offers the basic tax exemption limit up to Rs 3,00,000 to all tax payers, irrespective of their age. This simply means that an individual won’t have to pay any tax if his gross income in a financial year does not exceeds Rs 3 lakh. The highest income tax rate which is 30% is applicable if the net taxable income exceeds to 15 lakh.
A tax rebate of Rs 25,000 under Section 87A is offered under the new tax regime. This rebate will be applicable if the net taxable income does not exceed Rs 7 lakh. A marginal tax relief will be provided to the small taxpayers whose income are a little above to Rs 7 lakh.
The new tax slabs will be effective from the coming FY 2025-26 that starts from April 1, 2025, but only if the Parliament passes the proposals as presented.
Apart from the change in the tax slabs, the government has also increased the tax rebate available under the Section 87A. Thus, with this an individual having a net taxable income up to Rs 12 lakh will not require to pay any tax.
Tax reductions
The new tax regime offers limited tax deductions as compared to the old tax regime. The former was released in FY 2020-21 as an option at the time of announcement, but now it is a default option. It was to offer lower tax rates to the taxpayers, but there were no such deductions or exemptions. However, along with the passing years the Government has somewhat hiked the limits of deductions under the new tax regime.
As per the current income tax slab rules, a salaried tax payer can claim the standard deduction and employer contribution to the NPS account Tier-1. And the standard deduction of Rs 75000 can be claimed from the gross salary income. An employer’s contribution to the Tier-1 NPS account is available under Section 8OCCD (2). The maximum deduction allowed is 14% of the basic salary as a deduction from gross taxable income.
The new tax regime also offers for a lower surcharge of 25% on incomes above Rs 2 crores. The old tax regime allowed for exemptions on housing rentals, insurance and other long-term investment schemes. For this, the new tax regime does not allow for any exemptions, just slight lower rates.
As the new tax regime has become a default option, an individual will have to specifically opt for the old tax regime in order to claim tax deductions and exemptions under the latter one.