New Tax Regime tweaked: How taxpayers can save up to Rs 17,500 a year in income tax

While all taxpayers with taxable income of over Rs 12 lakh will save Rs 10,000 on account of rate rationalisation, their savings on account of the increase in standard deduction would be lower than those in the top tax bracket. This is because the savings due to higher standard deduction are calculated based on the applicable income tax rate, which would be different for different income groups.

Earlier, those falling in Rs 3-6 lakh taxable income bracket paid income tax at the rate of 5 per cent. The FM announced a change in this slab to Rs 3-7 lakh. Similarly, the slab for 10 per cent tax rate has been changed from Rs 6-9 lakh to Rs 7-10 lakh. The tax slab for 15 per cent rate has been changed from Rs 9-12 lakh to 10-12 lakh.

The Old Tax Regime (OTR) was left untouched in the Union Budget for 2024-25, and the additional savings offered under the NTR may be seen as further sweetening of the new regime in a bid to attract more salaried taxpayers to it. Over the past few years, the government has been trying to make the simple and exemption-free NTR the preferred tax regime for salaried taxpayers.

In a post-Budget media interaction, Sitharaman said that the government’s intent is to have a simple income tax regime and widen the tax base, and the simplified NTR is part of that effort. Responding to a question on whether the government is planning a sunset for the OTR as part of the planned comprehensive review of the Income Tax Act, Sitharaman said that she cannot comment on it till the review is done.

According to Revenue Secretary Sanjay Malhotra, of the around four crore taxpayers who have so far filed income tax returns for financial year 2023-24, around 70 per cent opted for the NTR, suggesting that the government’s efforts to sweeten of the new regime and make it more lucrative vis-à-vis the OTR in recent years has borne fruit.

How the New Tax Regime fares against Old Tax Regime

A set of fresh tweaking in the New Tax Regime has brought the tax outgo much closer to what one pays under the old tax regime after availing all the deductions available. For an individual with a taxable income of Rs 15 lakh and availing the maximum available deduction of Rs 4.75 lakh, while the tax outgo stands at Rs 111,800, under the new tax regime (2023-24) the tax outgo was higher by Rs 33,800. However, after the changes announced on Tuesday, the tax outgo under the new tax plan will now be higher by only Rs 18,200. It is important to note that if the deduction claimed is limited to Rs 4 lakh (instead of Rs 4.75 lakh) under the old tax regime, then the taxpayer would end up saving Rs 2,600 in the new tax regime.