Transitioning from Old to New Tax Regime Post Budget 2024

Budget 2024 has introduced significant changes to the new tax regime, offering increased tax relief by revising income tax slabs and enhancing standard deductions. Taxpayers now face a crucial decision: whether to switch from the old tax regime to the new one for the financial year 2024-25.

Key Changes in the New Tax Regime:

1. Revised Income Tax Slabs: The new tax regime features more favorable tax slabs, reducing the tax burden for many income brackets.
2. Standard Deduction Increase: Raised to ₹75,000 from ₹50,000, offering an additional ₹25,000 in tax-free income.
3. Family Pensioners’ Deduction: Increased from ₹15,000 to ₹25,000, providing more relief to pensioners.
4. Employer’s NPS Contribution: The deductible contribution has been raised from 10% to 14%, enhancing retirement savings benefits.

Break-even Analysis: To determine if switching to the new regime is beneficial, taxpayers must compare the total deductions they can claim under the old regime against the break-even deduction levels required to match the tax payable under both regimes.

• For an income of ₹10 lakh: The break-even deduction level is ₹3.5 lakh, inclusive of the standard deduction of ₹50,000 and additional eligible deductions totaling ₹3 lakh (e.g., HRA, Section 80C).
• For higher incomes: The required deductions increase with income levels but stabilize beyond ₹15.75 lakh. For instance, a ₹20 lakh income previously required ₹4.25 lakh in deductions; post-Budget 2024, it now needs ₹4.83 lakh to remain tax-neutral.

Decision Factors:

1. Eligible Deductions: Evaluate the total deductions you can claim (e.g., HRA, Section 80C, NPS contributions).
2. Comparison with Break-even Levels: If your deductions exceed the break-even amount, the old regime may offer lower taxes.
3. Tax Slab Benefits: Consider the reduced tax rates and increased standard deductions under the new regime.
4. Long-term Tax Planning: Factor in potential future changes and personal financial goals.

Conclusion: The choice between the old and new tax regimes depends on your specific financial circumstances and the deductions you can claim. By carefully analyzing your income, eligible deductions, and the new tax benefits, you can determine which regime will minimize your tax liability for the financial year 2024-25.

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