In the wake of the new fiscal year, April 1, 2024, sweeping changes in the tax landscape herald major implications for personal finances. Union Finance Minister Nirmala Sitharaman's Budget proposals encompass a host of alterations aimed at streamlining tax structures and providing relief to taxpayers. As the new financial year dawns, these reforms promise to reshape the tax landscape, offering both simplification and relief for taxpayers across the board. Here's a breakdown of the key reforms you should be aware of.
Default Adoption of New Tax Regime
The simplified tax structure and reduced deductions of the new tax regime become the default choice for all taxpayers. However, individuals retain the option to adhere to the old tax regime if it proves more advantageous to their financial circumstances.
Streamlined Slabs & Expanded Basic Exemption Limit
Under the new tax regime, the minimum tax threshold has been raised from Rs 2.5 lakh to Rs 3 lakh. Additionally, the number of tax slabs has been reduced from six to five, simplifying tax calculations for many.
Increased Tax Rebate Threshold
Individuals opting for the new tax regime will benefit from an increased tax rebate threshold under Section 87A of the Income-tax Act, 1961. Taxable incomes up to Rs 7 lakh will qualify for a full tax rebate, effectively nullifying income tax liability.
Extension of Standard Deduction
The standard deduction of Rs 50,000, previously applicable only under the old regime, now extends to the new regime as well. This move aims to lower taxable income for salaried individuals and pensioners.
Reduced Highest Surcharge Rate
The highest surcharge rate under the new tax regime has been reduced from 37 per cent to 25 per cent, alleviating the tax burden for certain taxpayers.
Additional Reforms
Beyond the core tax amendments, other significant changes set to come into effect include the taxation of maturity proceeds from life insurance policies exceeding Rs 5 lakh issued after April 1, 2023. Furthermore, non-government employees will benefit from an increased tax exemption limit on leave encashment upon retirement, raised from Rs 3 lakh to Rs 25 lakh.
Decreased Corporate Tax Rates
In a bid to stimulate investment, the government has slashed corporate tax rates from 30 per cent to 22 per cent for existing domestic companies. Additionally, a new lower rate of 15 per cent has been introduced for certain new manufacturing entities, aimed at fostering fresh investments in the sector.