Finance Act 2024: A Strategic Push towards the New Tax Regime
In an effort to simplify the process of filing income tax returns, the Government introduced the New Tax Regime (NTR) by incorporating Section 115BAC in the Income Tax Act, 1961. Launched through the Finance Act 2020, the NTR offers a Lower tax rate structure but excludes various deductions and exemptions such as deductions under Section 80C for investments in LIC/PPF, Section 80D for medical insurance, and Section 24(b) for home loan interest, among others. During its initial two years, the NTR did not gain widespread traction as it was less appealing to the majority of taxpayers who preferred the Old Tax Regime (OTR) due to beneficial deductions & exemptions.
However in the last two years, the NTR has been made lucrative by introducing a series of concessions and benefits. Once again, with the Finance Act 2024, few more advantages have been offered exclusively to NTR taxpayers to incentivize the shift. Let us explore why taxpayers are likely to favor the NTR over the OTR
1. Different Basic Exemption Limit (BEL):
The basic exemption limit under the NTR for individual taxpayers is Rs. 3 Lakh whereas it is Rs. 2.50 Lakh for non-senior citizens under the OTR. This limit of Rs. 2.50 Lakh has not been altered since last many years with an aim to ensure that the NTR is more beneficial vis a vis OTR.
2. Tax Rate in NTR vs. OTR:
a) The tax rate and slab under the NTR for the FY 2023-24 vis a vis FY 2024-25 is as under:
| Tax Rate | Income Range for the FY 2023-24 | Income Range for the FY 2024-25 |
| Nil | Up to Rs. 3 Lakh | Up to Rs. 3 Lakh |
| 5% | From Rs. 3 Lakh to Rs. 6 Lakh | From Rs. 3 Lakh to Rs. 7 Lakh |
| 10% | From Rs. 6 Lakh to Rs. 9 Lakh | From Rs. 7 Lakh to Rs. 10 Lakh |
| 15% | From Rs. 9 Lakh to Rs. 12 Lakh | From Rs. 10 Lakh to Rs. 12 Lakh |
| 20% | From Rs. 12 Lakh to Rs. 15 Lakh | From Rs. 12 Lakh to Rs. 15 Lakh |
| 30% | Above 15,00,000 | Above 15,00,000 |
b) Earlier, the tax bracket of 5% was covering the income between Rs. 3 Lakh to Rs. 6 Lakh which is enhanced to Rs. 7 Lakh by the Finance Act – 2024. The additional benefit of widening the tax slab of 5% income by Rs. 1 Lakh is only for those taxpayers who opt for NTR & there is no such benefit for the taxpayers under OTR.
c) Under the OTR, the tax rate is 5% for income between Rs. 2.50 Lakh to 5 Lakh, 20% for income between Rs. 5 Lakh to 10 Lakh & 30% for income above Rs. 10 Lakh. In short, the 5% slab under OTR is only for income between 2.50 Lakh to Rs. 5 Lakh whereas it is for income between Rs. 3 Lakh to Rs. 7 Lakh under NTR.
d) As a result of above, the tax outgo for the FY 2025-26 for the person under NTR will be reduced vis a vis for a person opting for OTR.
3. Tax Rebate under Section 87A:
a) For the taxpayers opting for the OTR:
Tax Rebate admissible under section 87A is Rs. 12,500/-. Further, the rebate U/s 87A is not available if the income exceeds Rs. 5 Lakh.
b) For the taxpayers opting for the NTR:
Higher tax rebate up to Rs. 25,000/- is available for the taxpayers under NTR. Further, the rebate U/s 87A is admissible in such a case if the income doesn’t exceed Rs. 7.50 Lakh.
In short, taxpayers with normal income up to Rs. 7 Lakh under NTR will not have any tax liability under NTR whereas it would attract tax under OTR.
Further, the rebate under section 87A is available even if the taxpayers have a higher income up to Rs. 7.50 Lakh under NTR whereas it is not so available under OTR if income exceeds Rs. 5 Lakh. Even the benefit of marginal relief for income slightly above the amount of Rs. 7 Lakh is available only if the taxpayer is under NTR.
4. Filing of Form for OTR mandatory now:
NTR has been made the default tax regime as a result of which taxpayers are not required to file any separate form for getting into NTR. Taxpayers who wish to opt for OTR have to file the declaration form No. 10IEA on or before the due date of filing the ITR. Any failure to file Form No. 10IEA before the due date will make the taxpayers move to NTR only.
5. Benefit of Higher Standard Deduction under NTR:
Till FY 2023-24, standard deduction of Rs. 50,000/- was available to the salaried taxpayers opting for the NTR as well as OTR. Now, the salaried person under NTR would be entitled for higher standard deduction of Rs. 75,000/- whereas it would be Rs. 50,000/- only under the OTR.
6. Higher deduction towards Family Pension under NTR:
Deduction towards family pension up to Rs. 15,000/- was available to taxpayers irrespective of whether they opt for the OTR or NTR. Now, the taxpayers in NTR would be eligible for higher deduction as the ceiling of Rs. 15,000/- has been enhanced to Rs. 25,000/-.
7. Reduction in Highest rate of Surcharge from 37% to 25%:
The highest surcharge rate for individuals in the NTR is 25% whereas the same could be as high as 39% under OTR. This will be another motivation to High net worth Individual (HNI) to opt for the NTR.
Conclusion:
The Finance Act 2024 marks another step to make the NTR as the preferred option for the taxpayers. With enhanced benefits, lower tax rates, and wider tax slab under the NTR, the OTR is gradually losing its charm. The shift from the OTR to the NTR has been very tactfully & diplomatically orchestrated by the Government. It has achieved its objective by creating a scenario where taxpayers are naturally inclined to choose the NTR giving the impression that the shift was their own choice. Although the OTR still exists, it is becoming increasingly less advantageous. It wouldn’t be surprising if the OTR is phased out entirely in the coming years, leaving the NTR as the singular, streamlined tax regime.
[Views expressed are the personal view of the author. Readers are advised to seek professional advice before taking any decisions. Readers may forward their feedback & queries at nareshjakhotia@gmail.com. Other articles & response to queries are available at www.theTAXtalk.com]
