The commencement of the new financial year on April 1, 2024, brings significant implications for personal finance, with several Budget proposals on income tax taking effect.
Union Finance Minister Nirmala Sitharaman unveiled numerous changes during her Budget speech, impacting individual finances. Here’s an in-depth exploration of the major modifications you should note, including expanded basic exemption limits and more.
New Tax Regime Default Adoption:
Under the new financial year, all taxpayers will default to the simplified structure and reduced deductions of the new tax regime. However, taxpayers retain the option to adhere to the old tax regime if it proves more advantageous.
Streamlined Income Tax Slabs and Expanded Basic Exemption Limit:
The income tax portal notes that the tax exemption limit has hiked from Rs 2.5 lakh to Rs 3 lakh in the old regime. Additionally, the number of income tax slabs has decreased from six to five, simplifying tax calculations for many individuals.
Increased Tax Rebate Threshold:
Individuals opting for the new tax regime will benefit from an increased tax rebate under Section 87A of the Income-tax Act, 1961. Those with taxable income up to Rs 7 lakh under the new regime will receive a full tax rebate, exempting them from income tax.
Standard Deduction Extension:
The standard deduction of Rs 50,000, previously applicable only under the old regime, is now applicable under the new regime as well. This will lower taxable income for salaried individuals and pensioners who don’t utilize various deductions.
Reduced Highest Surcharge Rate:
The highest surcharge rate under the new tax regime has been reduced from 37% to 25%, potentially easing the overall tax burden for some taxpayers. Sanjiv Bajaj, joint chairman and managing director (MD) of Bajaj Capital, explains, “The budget revised the surcharge rates applicable to the new tax regime for income exceeding Rs 50 lakh. This might affect your tax liability depending on your income bracket and chosen tax regime (old vs. new).”
Other Amendments:
Apart from the aforementioned changes, there are additional amendments slated for implementation at the start of the new financial year.
Life Insurance Taxation:
Maturity proceeds from life insurance policies issued on or after April 1, 2023, where the total premium exceeds Rs 5 lakh, will be taxable. This aims to discourage using life insurance primarily for tax benefits.
Exemption of Enhanced Leave Encashment:
The tax exemption limit on leave encashment upon retirement has been raised from Rs 3 lakh to Rs 25 lakh for non-government employees, offering substantial tax relief for accumulated leave encashment amounts.
Decreased Corporate Tax Rates:
The government has reduced corporate tax rates from 30% to 22% for existing domestic companies. Furthermore, a new lower rate of 15% has been introduced for certain new manufacturing companies to incentivize fresh investments in the sector.
These changes signify significant shifts in the tax landscape, impacting individuals and businesses alike as the new financial year unfolds.
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