Finance Minister Ms. Nirmala Sitharaman made significant changes to the new income tax system in the Union Budget 2024. For the fiscal year 2024–2025, the income tax slabs were adjusted, and the standard deduction was raised from Rs. 50,000 to Rs. 75,000. Furthermore, the Rs. 5 lakh to Rs. 7 lakh threshold for the 5% tax rate was increased. Furthermore, the capital gains tax regime underwent some major modifications, including the implementation of higher tax rates.

This article examines the subtle differences between the two regimes, highlighting the ongoing impact of Budget 2023's revisions to the tax code. In order to give taxpayers the knowledge they need to make wise financial decisions, the article compares the old and new regimes directly and includes specific income tax slabs and rates.

What is an Income Tax Slab?

When income in a fiscal year exceeds a threshold, it becomes taxable; the tax amount is based on the appropriate income tax brackets. The new and old tax regimes have different tax brackets and treatment. Every year, taxpayers without business income are given the option to select between these regimes.

The income tax slabs are different under the old and the new tax regimes. Further, the slab rates under the old tax regime are divided into three categories

Indian Residents aged < 60 years + All the non-residents

60 to 80 years: Resident Senior citizens

More than 80 years: Resident Super senior citizens

Income Tax Slab Rate FY 2024-25 For New Regime

Sl No.	Total Income	Rate Of Tax
1	Upto Rs 300, 000	Nil
2	From Rs.300, 001 to Rs.600, 000	5 percent
3	From Rs.600, 001 to Rs.900, 000	10 percent
4	From Rs.900, 001 to Rs.1200, 000	15 percent
5	From Rs.1200, 001 to Rs.1500, 000	20 percent
6	Above Rs.1500, 000	30 percent

The standard deduction for salaried individuals has been raised from Rs. 50,000 to Rs. 75,000 under the new regime. In the same vein, if individuals file taxes under the new system, the deduction for family pensions for those with pension income has been raised to Rs. 25,000 from Rs. 15,000.

The recent changes in the taxation of capital gains have significantly simplified the classification and taxation process. There are now only two holding periods for classifying assets into long-term and short-term: 12 months and 24 months, with the previous 36-month holding period removed. All listed securities are considered long-term if held for more than 12 months, while other assets require a holding period of 24 months to be considered long-term. Unlisted bonds and debentures will now be taxed like debt mutual funds and market-linked debentures, attracting capital gains tax at applicable slab rates, making them short-term regardless of the holding period.

The tax rate for short-term capital gains on listed equity shares, equity-oriented funds, and units of business trusts has been increased from 15% to 20%, while other short-term financial and non-financial assets continue to be taxed at slab rates.

For long-term capital gains, the exemption limit for lower and middle-income classes on transfers of equity shares, equity-oriented units, or business trust units has increased from Rs. 1 lakh to Rs. 1.25 lakh per year, with the tax rate rising from 10% to 12.5%. This exemption limit applies for the entire year, but the tax rate change takes effect from July 23, 2024. Long-term capital gains on other financial and non-financial assets now attract a reduced tax rate of 12.5%, down from 20%, but without the previous benefit of indexation. However, the provision allowing the fair market value (FMV) of assets as of April 1, 2001, to be used as the cost basis for calculating gains remains available after these changes.

The 2024 Union Budget proposed the removal of the Angel Tax provision under Section 56(2)(viib), which taxed companies issuing shares above fair market value (FMV) as income. This change is expected to benefit the startup ecosystem by easing frequent fundraising efforts and reducing compliance costs. Additionally, the budget lowers the corporate tax rate for foreign companies from 40% to 35%. The deduction limit for employers' contributions to pension schemes under Section 80CCD has increased from 10% to 14% of an employee's salary. The Securities Transaction Tax (STT) on futures has increased from 0.0125% to 0.02% and on options from 0.0625% to 0.1%.

Furthermore, the budget restricts the reopening of Income Tax Returns (ITR) to cases where the escaped income is Rs 50 lakh or more, extending the reassessment window from three years to five years, and reduces the time limit for search cases from ten years to six years. To reduce tax disputes, the monetary thresholds for appeals in tax tribunals, high courts, and the supreme court have been raised to Rs 60 lakh, Rs 1 crore, and Rs 2 crore, respectively. The 'Vivaad se Vishwas' scheme has also been reintroduced to facilitate the settlement of income tax disputes and reduce litigation.

Key Features
The New Tax Regime offers uniform tax rates for all individual categories, including regular individuals, senior citizens, and super senior citizens. Individuals with a net taxable income of up to Rs 5 lakh qualify for a tax rebate under Section 87A, resulting in zero tax liability under both the New and Old tax regimes.

For the financial year 2024, the enhanced rebate from Budget 2023 remains unchanged, exempting incomes up to Rs 7 lakh from tax under the New regime, effective from FY 2023-24. Surcharge rates are applied to high incomes, with 10% for income above Rs 50 lakh, 15% for income above Rs 1 crore, 25% for income above Rs 2 crore, and 37% for income above Rs 5 crore.

However, as of April 1, 2023, the maximum surcharge rate for incomes over Rs 5 crore in the New tax regime has been reduced to 25% from the previous 37%. Surcharge rates of 25% or 37% do not apply to income taxable under specific sections related to capital gains on shares and income of Foreign Institutional Investors, capping the surcharge at 15% for such incomes.

From Assessment Year 2023-24, the maximum surcharge on tax payable for dividend income or capital gains, as outlined in Section 112, and for an Association of Persons (AOP) consisting entirely of companies, is capped at 15%. Additionally, a 4% Health and Education Cess is levied on the total income tax liability and surcharge in all cases.

Conclusion
The slab limit has finally been raised from 2.5 lakhs to 3 lakhs, which is a huge relief for the average Indian citizen. Additionally, those with incomes up to 7 lakhs will receive tax rebates, which have been enhanced from 5 lakhs to 7 lakhs this year. The average person is still free to choose between the old and new tax regimes, and that decision is made only on the basis of personal preference. The new adjustments will be put into effect and are known as the default tax regime.

The latest modifications to India's tax legislation signify a significant move in the direction of modernising and streamlining the tax structure. The government's recent tax reforms are an example of its objective to create a business-friendly, progressive, and equitable tax system that stimulates investment, advances social welfare, and fosters economic growth. India is well-positioned to boost innovation, quicken the pace of its economic growth, and become more competitive internationally with the adoption of these reforms.

References:

• Finance Bill, 2024
• The Income Tax Act, 1961