Union Budget 2024: Detailed Analysis of Income Tax Slabs and Standard Deductions
The Union Budget 2024, presented by Finance Minister Nirmala Sitharaman, has introduced several significant changes to the income tax regime, aimed at providing relief to the middle class and pensioners while incentivizing the adoption of the new tax regime. The updates include revised income tax slabs, an increased standard deduction, and revamped capital gains tax rates. These changes are expected to result in substantial tax savings for individuals and foster greater equity in the tax system.
Revised Income Tax Slabs for FY 2024-25
The new income tax regime has been adjusted to provide more favorable tax rates across various income brackets. Here are the updated income tax slabs:
0-3 lakh rupees: NIL tax
3-7 lakh rupees: 5% tax
7-10 lakh rupees: 10% tax
10-12 lakh rupees: 15% tax
12-15 lakh rupees: 20% tax
Above 15 lakh rupees: 30% tax
These revised slabs are designed to reduce the tax burden on the middle class and encourage more taxpayers to opt for the new regime.
Increased Standard Deduction
One of the significant announcements in the budget is the increase in the standard deduction for salaried employees and pensioners:
- The standard deduction has been increased from Rs 50,000 to Rs 75,000 for salaried individuals.
- For pensioners, the deduction on family pension has been raised from Rs 15,000 to Rs 25,000.
- These changes are expected to provide financial relief to around four crore salaried individuals and pensioners, resulting in a tax saving of up to Rs 17,500 for those in the new tax regime.
Impact of the Revised Tax Slabs and Standard Deductions
The modifications in the tax slabs and standard deductions aim to put more disposable income in the hands of the middle class. For instance, individuals earning up to Rs 7 lakh annually will now fall under the 5% tax bracket, as opposed to the previous limit of Rs 5 lakh. This change alone can lead to significant tax savings for taxpayers in this bracket.
For those earning between Rs 10 lakh and Rs 12 lakh, the tax rate has been reduced from 20% to 15%, providing further financial relief. Similarly, the reduction in tax rates for higher income brackets ensures that the benefits are spread across a wide range of taxpayers.
Analysis of Other Key Announcements
Capital Gains Tax
The capital gains tax regime has undergone a complete overhaul, with increased tax rates. This change aims to streamline the taxation process and ensure a more equitable distribution of tax burdens. While the specifics of the new rates were not detailed in the initial announcement, the emphasis on increased rates indicates a shift towards higher contributions from those benefiting from capital gains.
Security Transactions Tax (STT)
To deepen the tax base, the Security Transactions Tax on futures and options of securities has been proposed to increase to 0.02% and 0.1%, respectively. This measure is expected to generate additional revenue for the government while maintaining equity in the tax system.
Tax on Share Buybacks
In a move towards greater tax equity, the budget proposes taxing income received on buybacks of shares in the hands of the recipient. This proposal aims to ensure that shareholders benefiting from buybacks contribute their fair share to the tax system.
Considerations for Taxpayers
Taxpayers must evaluate their financial situation to determine the most beneficial tax regime. According to Surabhi Marwah, Tax Partner at EY India, individuals with a gross income exceeding Rs 15.75 lakh should consider the new regime if their deductions and exemptions, excluding the standard deduction, are less than Rs 4,33,333. This analysis highlights the importance of careful financial planning and assessment in light of the new tax rules.
Expectations and Unmet Proposals
While the budget has introduced several beneficial changes, some anticipated adjustments did not materialize. For instance, there was an expectation that the 30% income tax rate would be applied to income and salary levels above Rs 20 lakh, rather than the current Rs 15 lakh threshold. Additionally, there were hopes for changes in Section 80C, Section 80D, and Section 80TTA related to savings, investments, medical insurance, and interest on bank deposits, which were not addressed. Moreover, senior citizens had anticipated a higher basic exemption limit under the new tax regime, but this expectation remained unmet.
Revised Income Tax Slabs for FY 2024-25
Income Bracket | Tax Rate |
0 – 3 lakh rupees | NIL tax |
3 – 7 lakh rupees | 5% tax |
7 – 10 lakh rupees | 10% tax |
10 – 12 lakh rupees | 15% tax |
12 – 15 lakh rupees | 20% tax |
Above 15 lakh rupees | 30% tax |
Increased Standard Deduction
Category | Previous Deduction | New Deduction |
Salaried Individuals | Rs 50,000 | Rs 75,000 |
Pensioners (Family Pension) | Rs 15,000 | Rs 25,000 |
Impact and Analysis
Change | Impact |
Increase in standard deduction for salaried employees | Financial relief and tax saving up to Rs 17,500 |
Increase in deduction for family pension | Additional financial relief for pensioners |
Tax rate reduction for income between Rs 3 lakh to Rs 7 lakh | Significant tax savings for individuals in this bracket |
Tax rate reduction for income between Rs 10 lakh to Rs 12 lakh | Reduced tax burden for higher middle-income earners |
Other Key Announcements
Measure | Details |
Capital Gains Tax | Complete overhaul with increased tax rates |
Security Transactions Tax (STT) | Increase to 0.02% on futures and 0.1% on options of securities |
Tax on Share Buybacks | Income received on share buybacks to be taxed in the hands of the recipient |
Taxpayer Considerations
Gross Income | Optimal Tax Regime | Deductions and Exemptions (excluding standard deduction) |
More than Rs 15.75 lakh | New tax regime | Less than Rs 4,33,333 |
Unmet Expectations
Expectation | Status |
30% tax rate for income above Rs 20 lakh | Not implemented |
Changes in Section 80C, 80D, 80TTA | No changes announced |
Higher basic exemption limit for senior citizens | Not addressed |
These tables summarize the key changes and impacts of the Union Budget 2024 on income tax slabs and deductions.
The Union Budget 2024 brings notable changes to the income tax regime, aiming to benefit the middle class, salaried individuals, and pensioners. The revised tax slabs and increased standard deductions are expected to result in significant tax savings, encouraging more taxpayers to adopt the new regime. However, the budget also highlights the need for ongoing financial planning and assessment to maximize the benefits of the new tax rules. As the government continues to refine the tax system, taxpayers must stay informed and adapt to the evolving landscape.
