Introduction
With Budget 2025, the government has made significant strides in simplifying the tax system and enhancing benefits for taxpayers. Among the most notable changes are the revised income tax slabs and the increased rebate under Section 87A, which make the new tax regime a much more attractive choice. While the old tax regime remains available, it's becoming increasingly clear that the new tax regime is the better option for many.
This article explores the key changes in the new tax slabs, how the increased rebate impacts individuals, and why the new tax regime is the more beneficial choice for most taxpayers in India today.
Income Tax Slabs: A Clear Shift Towards Simplicity
The new tax slabs introduced in Budget 2025 are a step towards easing the tax burden on middle-class taxpayers. Here's a breakdown of the updated slabs:
Annual Income Tax Rate (New Regime)
- Up to Rs 4 lakh Nil
- Rs 4 lakh - Rs 8 lakh 5%
- Rs 8 lakh - Rs 12 lakh 10%
- Rs 12 lakh - Rs 16 lakh 15%
- Rs 16 lakh - Rs 20 lakh 20%
- Rs 20 lakh - Rs 24 lakh 25%
- Above Rs 24 lakh 30%
One of the biggest changes is the exemption for incomes up to Rs 4 lakh, meaning individuals earning below this threshold will pay no tax at all. For those with incomes up to Rs 12 lakh, the increased rebate under Section 87A results in no tax.
Why the New Regime Works Better
1. Simplicity and Transparency: The new tax regime is straightforward and easy to follow. There are no complicated deductions to track, making it a hassle-free option. Taxpayers don't need to worry about investments, medical expenses, or other exemptions, which are the hallmarks of the old regime.
2. Larger Tax Savings: The new tax slabs and rebates ensure that taxpayers enjoy immediate relief. This makes the new regime particularly attractive for salaried individuals, who often don't have many deductions to claim under the old regime.
3. Better for Middle-Class Taxpayers: With the new tax regime, there's no need for extensive tax planning. For middle-class salaried individuals, the system is easier and results in lower tax burdens.
Increased Section 87A Rebate and Special Rates
Budget 2025 also increased the Section 87A rebate to Rs 60,000, which is available to individuals with a taxable income up to Rs 12 lakh. This means that, for many taxpayers, the rebate will effectively reduce their tax liability to zero, especially for those whose standard income falls below the Rs 12 lakh mark.
However, it's important to note that the Section 87A rebate will not apply to income subject to special tax rates, such as capital gains. So, while individuals earning up to Rs 12 lakh in regular income can benefit from the rebate, those with capital gains income will still pay tax at the special rates applicable to such gains, regardless of the rebate. This ensures that capital gains are taxed separately and not included in the rebate benefits.
Why the Old Tax Regime Is Losing Its Appeal
Though the old tax regime remains available, its appeal is gradually diminishing. Here's why:
1. Complexity: The old tax regime requires taxpayers to claim deductions under sections like 80C, 80D, and others, which can be time-consuming and complicated. It demands more detailed calculations and tax planning, which is a hassle for many.
2. Fewer Benefits for Salaried Individuals: The old regime works best for those with substantial exemptions and deductions, but salaried individuals with fewer claims are often better off under the new tax regime, as it provides immediate savings without the need for complex calculations.
3. Reduced Overall Value: While deductions such as Section 80C still exist, their limits are restrictive, and the overall benefits may not be enough to offset the simplicity and tax savings offered by the new regime.
Looking Ahead: The New Tax Bill
In addition to the significant changes introduced in Budget 2025, it's important to note that a new tax bill is expected to be introduced in Parliament next week. This bill will provide further details and clarifications on the tax provisions laid out in the Budget and ensure the smooth implementation of the new tax regime.
It will likely address fine points related to the rebates, special tax rates, and other aspects that will help simplify the process for both taxpayers and the tax department. This bill is a key step in realizing the government's vision of an efficient, transparent, and simplified tax system for all.
Conclusion: The New Tax Regime Is the Way Forward
With the changes brought about by Budget 2025, the new tax regime has become the more attractive and practical choice for most taxpayers. The simplified tax slabs, increased rebate under Section 87A, and no tax up to Rs 4 lakh make it a clear winner for individuals who prefer ease over complexity.
As the old tax regime continues to offer some benefits, particularly for those with substantial deductions, the new tax regime is set to be the dominant choice for the majority, especially salaried individuals. As the new tax bill makes its way into Parliament next week, we can expect more streamlined procedures and clarifications, making the transition to the new tax system even smoother.
CAclubindia
