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India's income tax landscape is undergoing a significant transformation with the implementation of new regulations effective from April 1st. These changes, stemming from Union Finance Minister Nirmala Sitharaman's Budget 2025 proposals, are poised to provide considerable relief to a substantial portion of the taxpayer base, estimated at nearly 1 crore individuals. The cornerstone of this reform is a substantial increase in the tax exemption limit under the new tax regime (NTR), a move designed to alleviate the tax burden on millions of middle-class earners. The increase in the tax exemption limit from Rs 7 lakh to Rs 12 lakh under the new tax regime represents a pivotal shift in the government's approach to income taxation. This revised threshold ensures that individuals earning up to Rs 12 lakh annually will no longer be subject to income tax, effectively placing a larger segment of the population outside the purview of direct taxation. This measure is anticipated to have a cascading effect on disposable incomes, empowering individuals to allocate more resources towards savings, investments, or discretionary spending. The increase in disposable income could stimulate economic activity by boosting consumer demand and encouraging capital formation. The government's rationale behind this policy shift is to foster economic growth by incentivizing individuals to participate more actively in the formal economy. By reducing the tax burden on middle-class earners, the government aims to encourage greater compliance and reduce the incentives for tax evasion. Furthermore, the revised tax slabs under the new tax regime have been carefully calibrated to ensure a progressive taxation structure. The progressive nature of the tax slabs means that higher earners contribute a proportionally larger share of their income to the national exchequer, while lower earners benefit from lower tax rates or complete exemption. This approach aligns with the principles of equity and social justice, ensuring that the tax system contributes to a more equitable distribution of wealth. The tax rates under the revised slabs are as follows: Rs 0-4 lakh – Nil, Rs 4-8 lakh – 5%, Rs 8-12 lakh – 10%, Rs 12-16 lakh – 15%, Rs 16-20 lakh – 20%, Rs 20-24 lakh – 25%, and Above Rs 24 lakh – 30%. These graduated tax rates aim to strike a balance between revenue generation and tax affordability, ensuring that the tax system remains both sustainable and equitable. The revised tax slabs are also designed to simplify the tax filing process and reduce the administrative burden on taxpayers. The clear and concise structure of the tax slabs makes it easier for individuals to calculate their tax liability and comply with their tax obligations. This simplification can lead to greater efficiency in tax collection and reduce the opportunities for errors or misinterpretations. Moreover, the government has emphasized its commitment to providing assistance and guidance to taxpayers to navigate the new tax regime. The tax authorities have launched various outreach programs and initiatives to educate taxpayers about the changes and ensure that they are aware of their rights and obligations. These efforts aim to foster a culture of voluntary compliance and ensure that the new tax regime is implemented effectively and fairly.
In addition to the changes in the tax exemption limit and tax slabs, the new income tax regime also introduces several other significant modifications that are expected to benefit taxpayers. One key change is the increase in the TDS (Tax Deducted at Source) threshold on rental income, which has been raised from Rs 2.40 lakh to Rs 6 lakh. This revision is specifically designed to ease the compliance burden on smaller landlords and property owners, who often face challenges in complying with the TDS requirements. The increase in the TDS threshold means that smaller landlords will no longer be required to deduct tax at source on rental income unless their annual rental income exceeds Rs 6 lakh. This measure is expected to reduce the administrative burden on smaller landlords and make it easier for them to manage their rental properties. The reduction in the compliance burden could also encourage more individuals to invest in rental properties, which could help to address the housing shortage in many parts of the country. Furthermore, the increase in the TDS threshold is expected to benefit tenants as well. Tenants who rent properties from smaller landlords will no longer be required to provide their PAN (Permanent Account Number) to the landlords, as the landlords are no longer required to deduct tax at source. This simplifies the rental process and reduces the administrative burden on tenants. The government's decision to increase the TDS threshold on rental income reflects its commitment to promoting ease of doing business and reducing the regulatory burden on small businesses and individuals. This measure is part of a broader effort to streamline the tax system and make it more user-friendly. For salaried individuals, a standard deduction of Rs 75,000 will continue to be applicable under the new tax regime. This standard deduction provides a fixed amount that can be deducted from an individual's gross salary to arrive at their taxable income. The standard deduction is designed to simplify the tax filing process and reduce the need for individuals to maintain detailed records of their expenses. The continuation of the standard deduction under the new tax regime ensures that salaried individuals continue to benefit from this tax-saving measure. This means that an individual with an annual salary of Rs 12.75 lakh will effectively fall within the tax-exempt bracket, owing to the deduction that lowers their taxable income to Rs 12 lakh. The standard deduction can significantly reduce the tax liability of salaried individuals, especially those with lower incomes.
While the higher exemption slab is undoubtedly a boon for many taxpayers, it is crucial to recognize that individuals earning slightly above Rs 12 lakh will not be entirely exempt from paying income tax. This nuanced aspect of the new tax regime underscores the importance of careful tax planning and understanding the applicable tax rates for different income brackets. For instance, consider an individual with a taxable income of Rs 12.1 lakh. While they benefit from the increased exemption limit, they will still incur a tax liability of Rs 61,500, calculated as follows: 5% on income between Rs 4 lakh and Rs 8 lakh, 10% on income between Rs 8 lakh and Rs 12 lakh, and 15% on the amount exceeding Rs 12 lakh up to Rs 16 lakh. This example illustrates the progressive nature of the tax system, where higher earners pay a larger percentage of their income in taxes. The progressive tax system aims to ensure that the tax burden is distributed fairly across different income groups. Similarly, for an individual with a taxable income of Rs 15 lakh, the total tax liability will amount to Rs 1,05,000. This calculation demonstrates the importance of accurately determining one's taxable income and applying the correct tax rates to each income bracket. Taxpayers are advised to consult with tax professionals or use online tax calculators to ensure that they are accurately calculating their tax liability. For higher income groups earning over Rs 24 lakh annually, the top tax rate of 30 per cent remains unchanged under the new tax regime. However, even individuals in these higher income brackets may benefit from marginal reductions in their overall tax outgo due to the restructured tax slabs. The restructured tax slabs are designed to ensure that the tax burden is distributed more evenly across different income levels. The reduction in the tax burden for higher income groups could encourage them to invest more in the economy, which could lead to economic growth. The implementation of the new income tax regime is expected to have a significant impact on the Indian economy. The increase in disposable income for middle-class earners could boost consumer demand and drive economic growth. The simplification of the tax system could reduce the administrative burden on taxpayers and encourage greater compliance. The progressive nature of the tax system could contribute to a more equitable distribution of wealth. The government is committed to ensuring that the new tax regime is implemented effectively and fairly. The tax authorities will continue to provide assistance and guidance to taxpayers to navigate the new tax regime. The government is also committed to monitoring the impact of the new tax regime on the economy and making adjustments as needed to ensure that it continues to promote economic growth and equity.
Source: Recap of new income tax coming into effect from April 1