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A Comprehensive Guide to Interim Budget 2024

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A Comprehensive Guide to Interim Budget 2024

The Hon’ble Finance Minister Shrimati Nirmala Sitharaman presented the budget speech in parliament on 1st Feb 2024. As this an interim budget, there are no major changes in taxation. While the major updations may hold off until after the 2024 general elections, the upcoming union budget presents an opportunity to address lingering concerns and set the stage for future economic growth.

Key highlights of the Interim Union Budget 2024

1.    No Changes in Tax Rates of Direct Tax.
One of the standout features of the interim Budget is the decision to maintain the status quo in income tax rates. Both direct and indirect tax rates remain untouched, offering individuals a familiar framework for financial planning and continuity in tax policies.

2. Withdrawal of Outstanding Direct Tax Demands

As a measure to ease the burden on taxpayers, the budget introduces the withdrawal of outstanding direct tax demands for specific periods:

1. Up to ₹25,000 up to FY 2009-10

Outstanding direct tax demands up to ₹25,000 pertaining up to the financial year 2009-10 will be withdrawn. This move aims to address longstanding tax issues for taxpayers from that fiscal year.

2. Up to ₹10,000 for FY 2010-11 to 2014-15

For the subsequent fiscal years from 2010-11 to 2014-15, taxpayers will benefit from the withdrawal of outstanding direct tax demands up to ₹10,000. This targeted relief addresses smaller outstanding amounts during this period.

However for better understanding we have made a Small Presentation to clarify which is Better “New or Old Tax Regime” for an Assesse at different Income levels.

New Tax Regime

What deductions and exemptions are allowed under the new tax regime?

Here is a comparison between the deductions and exemptions available under the new and the old tax regime:


Particulars

Old Tax Regime

 New tax Regime 
 (until 31st March 2023)

New Tax Regime 
   (From 1st April 2023)

Income level for rebate eligibility

₹ 5 lakhs

₹ 5 lakhs

₹ 7 lakhs

Standard Deduction

₹ 50,000

₹ 50,000

Effective Tax-Free Salary income

₹ 5.5 lakhs

₹ 5 lakhs

₹ 7.5 lakhs

Rebate u/s 87A * SEE NOTE 1

₹12,500

₹12,500

₹25,000

HRA Exemption

X

X

Leave Travel Allowance (LTA)

X

X

Other allowances including food allowance of Rs 50/meal subject to 2 meals a day

X

X

Standard Deduction (Rs 50,000)

X

Entertainment Allowance and Professional Tax

X

X

Perquisites for official purposes

Interest on Home Loan u/s 24b on: Self-occupied or vacant property

X

X

Interest on Home Loan u/s 24b on: Let-out property

Deduction u/s 80C (EPF | LIC | ELSS | PPF | FD | Children’s tuition fee etc)

X

X

Employee’s (own) contribution to NPS

X

X

Employer’s contribution to NPS 80CCD(2)

Medical insurance premium – 80D

X

X

Disabled Individual – 80U

X

X

Interest on education loan – 80E

X

X

Interest on Electric vehicle loan – 80EEB

X

X

Donation to Political party/trust etc – 80G

X

X

Savings Bank Interest u/s 80TTA and 80TTB

X

X

Other Chapter VI-A deductions

X

X

All contributions to Agniveer Corpus Fund – 80CCH

Did not exist

Deduction on Family Pension Income

Gifts up to Rs 50,000

Exemption on voluntary retirement 10(10C)

Exemption on gratuity u/s 10(10)

Exemption on Leave encashment u/s 10(10AA)

Daily Allowance

Conveyance Allowance

Transport Allowance for a specially-abled person

Surcharge Rate reduced
SEE NOTE 2

X

X

* SEE NOTE 1 Rebate U/s 87A is not available if Income exceeds Rs.5L in old scheme. However in New Scheme up to 7L Income Tax is NIL.

* SEE NOTE 2. The Surcharge rate on income over ₹5 crores has been reduced from 37% to 25%.

The government in Budget 2023 introduced some key changes, which remains the same even for FY 2024-2025 since no changes were made in the Interim Budget 2024, to encourage taxpayers to adopt the new regime.

They are:
a) Higher Tax Rebate Limit and Marginal Relief: Rebate u/s 87A  is available for Resident Individual having Total Income up to Rs.7, 00,000/-
1) 100% of tax payable, or
2) Rs. 25,000/-
Whichever is Lower
Marginal Relief:
If total income more than Rs. 7,00,000/- but does not exceed Rs. 7,27,770/-, tax on such income cannot exceed the amount by which the Total Income exceeds



c) Standard Deduction and Family Pension Deduction:
Salary income: The standard deduction of ₹50,000, which was only available under the old regime, has now been extended to the new tax regime as well. This, along with the rebate, makes ₹7.5 lakhs as your tax-free income under the new regime.

Family pension: Those receiving family pension can claim a deduction of: ₹15,000 or 1/3rd of pension, whichever is lower.

d) Reduced Surcharge for High Net worth Individuals: The surcharge rate on income over ₹5 crores has been reduced from 37% to 25%. This move will bring down their effective tax rate 42.74% to 39%.

e) Higher Leave Encashment Exemption:
The exemption limit for non-government employees has been raised from ₹3 lakhs to ₹25 lakhs, an 8-fold increase.

f) Default Regime:
Starting from FY 2023-24, the new income tax regime will be set as the default option. If you want to continue using the old regime, you must submit a form at the time of return filing. You will have the option to switch between the two regimes annually.

Old Tax Regime

The old regime is the tax system that prevailed before the introduction of the new regime. Under this regime, there are over 70 exemptions and deductions available, including HRA and LTA, that can reduce your taxable income and lower tax payments. The most popular and generous deduction is Section 80C, which allows for a reduction of taxable income up to Rs.1.5 lakh. The taxpayers are given a choice between the old and the new tax regime.

The decision to switch to the new or remain in the old tax regime or which regime is better for you shall be based on the tax savings deductions and exemptions you are eligible for in the old tax regime.

To make it easier, we have calculated a breakeven point for various income levels (refer to the table below) for a salaried individual below 60 years of age. This can be used to determine which regime to choose.

 

This Chart has been prepared by considering Salary/ Total income (excluding All Capital Gains and Special Income) which changes variably at various levels. Then what will be Tax and Deductions:

 

Income Level

Less: Standard Deduction

Net Income

Tax under both regimes

Additional Deductions

(over & above standard deduction) required in Old Regime to Break Even

Which Tax Regime to choose- old or new?

₹7,00,000

₹50,000

₹6,50,000

₹0

₹1,50,000

You will benefit only in new regime.

₹8,00,000

₹50,000

₹7,50,000

₹36,400

₹1,38,500

Old regime: if deductions > Rs 1,38,500

New regime: if deductions < Rs 1,38,500

₹9,00,000

₹50,000

₹8,50,000

₹41,600

₹2,12,500

Old regime: if deductions > Rs 2,12,500

New regime: if deductions < Rs 2,12,500

₹10,00,000

₹50,000

₹9,50,000

₹54,600

₹2,50,000

Old regime: if deductions > Rs. 2,50,000

New regime: if deductions < Rs 2,50,000

₹12,50,000

₹50,000

₹12,00,000

₹93,600

₹3,12,500

Old regime: if deductions > Rs. 3,12,500

New regime: if deductions < Rs 3,12,500

₹15,00,000

₹50,000

₹14,50,000

₹1,45,600

₹3,58,000

Old regime: if deductions > Rs. 3,58,000

New regime: if deductions < Rs 3,58,000

₹15,50,000

₹50,000

₹15,00,000

₹1,56,000

₹3,75,000

Old regime: if deductions > Rs. 3,75,000

New regime: if deductions < Rs 3,75,000

₹16,00,000

₹50,000

₹15,50,000

₹1,71,600

₹3,75,000

Old regime: if deductions > Rs. 3,75,000

New regime: if deductions < Rs 3,75,000

 

Conclusion : A thorough comparison of the two regimes is necessary to determine the best fit for each person. If your income is up to 15Lakh then Tax will be ₹ 1,17,000/- which will be offset if your deduction are up to ₹ 3,75,000/- 
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