The updated tax framework provides individuals with more flexible tax slabs and rates when compared to the traditional system. Nevertheless, a significant number of deductions previously permitted under the old regime are no longer applicable under this new structure. Additionally, the Budget for 2025 introduced updated tax slab rates effective from the financial year 2025-26. Many taxpayers find the exemptions and deductions allowed in the new regime confusing. This article aims to clarify common queries concerning the New Tax Regime.

Income Tax Slab Rates for Financial Year 2024-25

The tax slab for FY 2024-25 is as follows:

| Tax Slab for FY 2024-25 | Tax Rate | |---| | Upto ₹ 3 lakh | NIL | | ₹ 3 lakh - ₹ 7 lakh | 5% | | ₹ 7 lakh - ₹ 10 lakh | 10% | | ₹ 10 lakh - ₹ 12 lakh | 15% | | ₹ 12 lakh - ₹ 15 lakh | 20% | | More than 15 lakh | 30% |

Modifications to Standard Deduction for Financial Year 2024-25

For Assessment Year 2025-26 (Financial Year 2024-25), the Budget 2024 increased the standard deduction limit under the new tax framework from ₹50,000 to ₹75,000.

Family Pension Deduction for Financial Year 2024-25

The Budget 2024 enhanced family pension deductions to ₹25,000 from the previous ₹15,000, applicable for Assessment Year 2025-26 (Financial Year 2024-25).

Updated Income Tax Slabs and Rates Under the Revised New Tax Regime

The new tax framework features revised income tax slabs. The following are the new income tax slabs for Financial Year 2025-26 (Assessment Year 2026-27) under this regime:

| Income Tax Slabs | Tax Rate | |---| | Upto Rs. 4 lakhs | NIL | | Rs. 4 lakhs - Rs. 8 lakhs | 5% | | Rs. 8 lakhs - Rs. 12 lakhs | 10% | | Rs. 12 lakhs - Rs. 16 lakhs | 15% | | Rs. 16 lakhs - Rs. 20 lakhs | 20% | | Rs. 20 lakhs - Rs. 24 lakhs | 25% | | Above Rs. 24 lakhs | 30% |

Surcharge and cess amounts are applied separately, contingent on the taxable income, in addition to the tax rates listed above.

Surcharge Amounts in the Revised New Tax Regime: Applicability for High-Income Earners

Under the updated new tax regime, the surcharge rate for taxpayers earning over ₹5 crores has been lowered from 37% to 25%. Consequently, this surcharge modification specifically affects individuals who opt for the new tax regime and have an income exceeding ₹5 crores. The various surcharge rates based on income levels are detailed below:

| Net Taxable Income limit | Surcharge Rate on the amount of income tax | |---| | Before Budget 2023 | After Budget 2023 | | Less than ₹50 lakhs | Nil | Nil | | More than ₹50 lakhs ≤ ₹ 1 Crore | 10% | 10% | | More than ₹ 1 Crore ≤ ₹ 2 Crore | 15% | 15% | | More than ₹ 2 Crore ≤ ₹ 5 Crore | 25% | 25% | | More than ₹ 5 Crore | 37% | 25% |

Understanding Zero Income Tax Liability Up to ₹7 Lakh Under the New Regime

A tax rebate reduces your tax burden, but it is exclusively granted to resident individuals. Conversely, the tax slabs apply universally to all entities, including individuals, HUFs, AOPs, whether resident or non-resident. Therefore, during tax computation, calculations are initially based on the slab rates. The rebate is then subtracted from your final tax amount, potentially bringing it to zero. However, this rebate is only available to resident individuals. Similar to the old tax regime, where income up to ₹5,000,000 is tax-free, the new tax regime exempts total income up to ₹7,00,000 from tax due to the rebate under Section 87A.

Permitted Deductions Under the Revised New Tax Regime

Deductions in the new regime:

• A standard deduction of up to ₹75,000 for salaried individuals (effective from FY 2024-25 onwards).
• Standard deduction on certain pensions: ₹25,000 or one-third of the pension, whichever is less (effective from FY 2024-25 onwards).
• Interest on home loans under Section 24b for let-out property.
• Employer's contribution to NPS, up to 14% of salary (effective from FY 2024-25 onwards).
• All contributions made to the Agniveer Corpus Fund (Section 80CCH).
• Leave encashment under Section 10(10AA).
• Gratuity under Section 10(10).
• Transport allowances for persons with disabilities.
• Exemptions for Voluntary Retirement Scheme under Section 10(10C).
• Gifts up to ₹50,000.

Leave Encashment Exemption Under the New Tax Regime

Yes, leave encashment is eligible for exemption within the new tax regime. The Budget 2023 significantly increased the exemption limit for leave encashment by eight times, from ₹3 lakhs to ₹25 lakhs, for non-government employees. Consequently, at the time of retirement, leave encashment up to ₹25 lakhs remains tax-free under Section 10(10AA).

Comparing the Old and New Tax Regimes: Which is More Beneficial?

There is no single correct answer; the optimal choice depends on your income level, available exemptions, deductions, and investment strategies. While a direct comparison tool could help you determine the most advantageous regime by calculating potential tax savings, it's crucial to understand your specific financial situation. For a comprehensive guide on selecting the appropriate tax regime based on your income, refer to detailed resources on income tax slabs.

Taxability of PF and VPF Investments Under the New Regime

Deductions under Section 80C are not permissible in the new tax regime. For a complete list of exemptions and deductions allowed under the new framework, you can find more information here.

Tax Exemption for Agniveer Corpus Fund Withdrawals in the New Regime

Yes. Any funds disbursed from the Agniveer Corpus Fund are entirely tax-exempt under both the old and new tax regimes. Individuals participating in the Agnipath scheme can contribute to the Agniveer Corpus Fund, with an equivalent contribution from the government. Both these contributions qualify for tax deductions from your income under the newly introduced Section 80CCH. Furthermore, the amount received at the conclusion of your tenure will also be exempt from tax under the recently added Section 10(12C).

Zero Tax Liability for Income Up to ₹7.75 Lakhs with Standard Deduction in the New Regime

The Budget 2023 introduced a tax rebate for incomes up to ₹7 lakhs under the new tax regime. This means that taxpayers with an income of up to ₹7 lakhs are not required to pay any tax if they choose the new regime. Additionally, a standard deduction of ₹75,000 was also introduced under this regime. Therefore, a taxpayer whose income reaches ₹7.75 lakhs will incur zero tax liability if they opt for the new tax regime.

Income Threshold for Salaried Individuals to Avoid Tax Payments in FY 2025-26

For salaried individuals, the income limit for zero tax obligation stands at ₹12,75,000. This is attributable to the ₹75,000 standard deduction available under the new regime, coupled with a ₹60,000 rebate applicable from Financial Year 2025-26, which collectively results in no tax liability.

Switching Between Old and New Tax Regimes: Rules and Frequency

Effective from Financial Year 2023-24, the new income tax regime became the default option. If you wish to revert to the old regime, you must submit Form 10-IEA when filing your tax return. The frequency with which you can switch between regimes depends on your income source:

• Business or professional income: You are permitted to switch between the old and new regimes only once throughout your lifetime.
• Other income (e.g., salary): You have the flexibility to switch between the old and new tax regimes annually.

Presumptive Taxation Under the New Regime

The presumptive taxation scheme operates identically under both the new and old tax regimes.

| Category | Turnover/receipts within limits (Before Budget 2023) | Turnover/receipts within limits (After Budget 2023) | |---| | Small Business Owners (Section 44AD) | ₹2 crore | ₹3 crore* | | Specified Professionals (Section 44ADA) | ₹50 lakhs | ₹75 lakh* |

*Note: 95% of your earnings must be received through online payment methods, not cash.

Benefits of Adopting the New Tax Regime

The new tax regime simplifies tax compliance by removing the need to track rent receipts, travel tickets, and intricate tax planning. It offers reduced tax rates and fewer deductions, thereby eliminating the pressure to invest in specific tax-saving schemes and insurance plans that might not align with your individual financial objectives.

Tax Implications for Insurance Proceeds and Premium Exemption

Amounts received from a life insurance policy are generally exempt from taxes, provided the premiums paid on the policy do not exceed 10% of the sum assured. Historically, some taxpayers misused this exemption by investing in policies with high premium contributions to claim larger tax exemptions. To counteract such practices, the government restricted the tax exemption on high-value life insurance policies. Consequently, proceeds from life insurance policies are now subject to taxation if the annual premium paid in a single year surpasses ₹5 lakhs.

Section 80C Deduction Under the Revised New Tax Regime

No, if you choose the new tax regime, you will not be eligible to claim any tax benefits under Section 80C. However, a deduction of ₹25,000 against income from family pension can still be claimed under the new tax regime.

Home Loan Interest Deduction Under the New Tax Regime

Under the new tax regime, the deduction for home loan interest repayment under Section 24b is disallowed for self-occupied property. Furthermore, income from a self-occupied property is always considered NIL. However, interest deduction is permitted for a let-out property without any upper limit under the new tax regime.