With the new financial year around the corner, here are the income tax changes you should be aware of, including those on proceeds from life insurance policies, and expanded basic exemption limits, among others
As we bid adieu to the current financial year and welcome the new financial year, FY 2024-25, we see definite changes on the horizon, which signify a transition rather than just a shift in the calendar. As these set of rules will impact individual finances, the question remains: how will these shifts reshape the tax scenario for the upcoming year? We take a look at what the new financial year has in store for you.
New Tax Regime Default Adoption: For all taxpayers, the simplified structure and reduced deductions of the new tax regime will become the default choice. However, taxpayers still have the liberty to stick to the old tax regime, if it’s more beneficial to them.
Streamlined Slabs And Expanded Basic Exemption Limit: Abhishek Soni, CEO, Tax2Win, an income tax portal says that the “minimum tax has been increased from Rs 2.5 lakh to Rs 3 lakh under the new tax regime. Also, the number of income tax slabs has been changed from six to five, to simplify tax calculations for many individuals.”
Increased Tax Rebate Threshold: For individuals opting for the new tax regime, the tax rebate provided under Section 87A of the Income-tax Act, 1961 has been increased. Hence, people with a taxable income up to Rs 7 lakh under the new regime will get a full tax rebate, absolving them from paying any income tax.
Standard Deduction Extension: The standard deduction of Rs 50,000, which was earlier applicable solely for the old regime, will now be applicable for the new regime, too.
Says Soni: “This would essentially bring down the taxable income for salaried individuals and pensioners who do not utilise various deductions.”
Reduced Highest Surcharge Rate: The highest surcharge rate under the new tax regime has been brought down from 37 per cent to 25 per cent, potentially easing the overall tax burden for some taxpayers.
Says Sanjiv Bajaj, joint chairman and managing director (MD), Bajaj Capital: “The budget revised the surcharge rates applicable to the new tax regime for income exceeding Rs 50 lakh. This might affect your tax liability depending on your income bracket and chosen tax regime (old vs new).”
The above-mentioned changes are some of the main shifts in the tax system. However, there are certain other amendments scheduled for implementation at the beginning of the new financial year.
Life Insurance Taxation: Maturity proceeds from life insurance policies which are issued on or after April 1, 2023, and where the total premium exceeds Rs 5 lakh, will be subject to taxation. This is aimed at lessening the utilisation of life insurance mainly for tax benefits.
Exemption Of Enhanced Leave Encashment: The tax exemption limit on leave encashment upon retirement has been increased from Rs 3 lakh to Rs 25 lakh, for non-government employees. This has brought in significant tax relief for accumulated leave encashment amounts.
Decreased Corporate Tax Rates: The government has decreased the corporate tax rates from 30 per cent to 22 per cent for existing domestic companies. Moreover, for certain new manufacturing companies, a new lower rate of 15 per cent has been introduced in order to encourage fresh investments in the sector.