Is old tax regime over? What FM Sitharaman said about old and new regimes

Union Budget 2024-25: Govt to review old tax regime. What is the current tax system and what has the Budget 2024 proposed for FY25

After presenting the Union Budget 2024, Finance Minister Nirmala Sitharaman addressed the ongoing discussion regarding the old income tax regime. When asked by journalists if the revised tax slabs meant the old regime may finally be discontinued, Sitharaman clarified that the government has not yet made a final decision on it.

At the beginning of the press conference, following the Budget 2024 speech, the finance minister stated that the government’s goal was to “simplify” the tax system. Sitharaman said that any decision about the potential end of the old tax regime would come after a thorough review.

“The government’s intention is to make the income tax regime simpler. I cannot say whether there will be a sunset on the old income tax regime. A decision will be made after a review,” Sitharaman said.

Here is a closer look at what the old, current and proposed tax regimes are and what they can mean for Indian taxpayers.

What are income tax slabs?

In India, income tax is applied based on a slab system where different rates are assigned to different income ranges. This progressive tax system ensures that individuals with higher incomes pay higher tax rates. These slabs are periodically revised, typically during each Budget session.

What is standard deduction?

Under Indian taxation laws, the standard deduction allows salaried employees and pensioners to claim a fixed amount from their taxable income without needing to submit any investment proofs or disclosures.

The Finance Minister announced an increase in the standard deduction from Rs 50,000 to Rs 75,000 aims to provide additional relief to taxpayers.

What is the current tax regime?

In the financial year 2023-24, more than two-thirds of individual taxpayers opted for the new personal income tax regime. Currently, taxpayers can choose between two systems:
 

Old tax regime: This allows for various exemptions such as those for housing rent and insurance. Under the old tax regime, a tax rebate up to Rs 12,500 is applicable if the total income does not exceed Rs 5,00,000. This rebate is not applicable for non-resident Indians (NRIs).
 

New tax regime: Introduced in 2020, this offers slightly lower tax rates but does not permit major exemptions.

Union Finance Minister Nirmala Sitharaman presented the Union Budget for FY 2024-25, introducing notable changes to the income tax regime.

What are the revised tax slabs for FY25?

Under the revised new tax regime effective from April 1, 2024, the income tax slabs are as follows:
 

Income up to Rs 3,00,000: Nil

Rs 3,00,001 - Rs 7,00,000: 5 per cent of the amount exceeding Rs 3,00,000

Rs 7,00,001 - Rs 10,00,000: Rs 20,000 + 10 per cent of the amount exceeding Rs 7,00,000

Rs 10,00,001 - Rs 12,00,000: Rs 50,000 + 15 per cent of the amount exceeding Rs 10,00,000

Rs 12,00,001 - Rs 15,00,000: Rs 80,000 + 20 per cent of the amount exceeding Rs 12,00,000

Above Rs 15,00,000: Rs 1,40,000 + 30 per cent of the amount exceeding Rs 15,00,000

The new tax regime (pre-April 2024) was structured as follows:
 

Income up to Rs 3,00,000: Nil

Rs 3,00,001 - Rs 6,00,000: 5 per cent of the amount exceeding Rs 3,00,000

Rs 6,00,001 - Rs 9,00,000: Rs 15,000 + 10 per cent of the amount exceeding Rs 6,00,000

Rs 9,00,001 - Rs 12,00,000: Rs 45,000 + 15 per cent of the amount exceeding Rs 9,00,000

Rs 12,00,001 - Rs 15,00,000: Rs 90,000 + 20 per cent of the amount exceeding Rs 12,00,000

Above Rs 15,00,000: Rs 1,50,000 + 30 per cent of the amount exceeding Rs 15,00,000

Standard deduction increase

The standard deduction for salaried employees under the new regime will increase from Rs 50,000 to Rs 75,000. This change is expected to result in tax savings of up to Rs 17,500 for salaried employees.

So, how will the standard deduction increase impact different income groups? Let’s find out:

For incomes up to Rs 7,00,000

The new structure offers a wider 5 per cent slab up to Rs 7 lakh, compared to Rs 6 lakh in the current structure (pre-April 2024), providing greater tax relief for this income group.

For incomes between Rs 10,00,001 and Rs 15,00,000

The proposed structure results in lower taxes. For instance, an individual earning Rs 12,00,000 would pay Rs 80,000 under the proposed regime, compared to Rs 90,000 under the current regime (pre-April 2024).

For incomes above Rs 15,00,000

There is a slight reduction in tax liability in the proposed regime. Individuals would pay Rs 1,40,000 + 30 per cent of the amount exceeding Rs 15,00,000, compared to Rs 1,50,000 plus 30 per cent under the current regime (pre-April 2024).