Budget 2024-25: How Will New Tax Slabs Benefit The Middle Class?

The Government of India introduced the Union budget for the 2024-25 on July 23, 2024. It was the first budget of the third term of the Modi Government. The budget featured a wide array of changes to achieve economic development targets. 

For the middle class, some of the key features of the budget are introduction of new tax slabs under the new regime, hike in the standard deduction limit, etc.

In this blog, we will discuss the changes introduced in Budget 2024 for the general public, i.e., the new tax slabs and standard deduction.

What is Income Tax and the Slab Rates?

Income tax is the direct tax which is imposed on income or profits earned by individuals and corporations. It is a major source of revenue for the government; in fact, almost 19% of the govt. revenue comes from Income tax only in FY 23-24. This 19% covers Corporation Tax (CIT) and Personal Income Tax (PIT) including Securities Transaction Tax (STT).

India has a progressive income tax system, which means people with higher incomes pay more of their income in taxes. Income is divided into different slabs, each with a specific tax rate.

Additionally, India offers two tax regimes: the old tax regime and the new tax regime. The new regime offers a lower tax rate but comes with fewer deductions. An individual can choose the regime that best suits their situation.

In the union budget of 2024-25, the govt. has revised the tax slabs under the new tax regime. Keep in mind that there is no modification in slabs of the old tax regime. Let’s have a look at the existing slabs of new tax regime:

Income Tax Slab (in INR)	Income Tax Rate (%)
Up to 3,00,000	0
3,00,001 – 6,00,000	5%
6,00,001 – 9,00,000	10%
9,00,001 – 12,00,000	15%
12,00,001 – 15,00,000	20%
15,00,001 and above	30%

Read Also: Budget 2024-25: How Will New Tax Slabs Benefit The Middle Class?

Slab Rates Proposed in Budget 2024-25

The income tax slab rates for the new tax regime proposed in Budget 2024-25 are:

Income Tax Slab (in INR)	Income Tax Rate (%)
Up to 3,00,000	0
3,00,001 – 7,00,000	5%
7,00,001 – 10,00,000	10%
10,00,001 – 12,00,000	15%
12,00,001 – 15,00,000	20%
15,00,001 and above	30%

Did you know?

Finance Minister Nirmala Sitharaman made history on 23 July 2024, by presenting her seventh consecutive budget—six annual budgets and one interim budget. No other finance minister in India’s history has reached this milestone. This achievement surpasses the previous record held by former Finance Minister Morarji Desai, who presented six budgets in a row.

What is Standard Deduction?

In the Income Tax Act, we have certain exemptions and deductions to reduce our tax liability. Deductions are provisions that allow an individual to reduce his/her income and, thus, reduce the tax liability.

Standard deduction is one of the most popular deductions claimed by individuals. It is a flat deduction that an individual can subtract from the total salary or pension received in a given financial year. Remember that the standard deduction is not available for business income.

An important change regarding the standard deduction under the new tax regime was announced in the Budget 2024-25. The limit was hiked from INR 50,000 to INR 75,000. Similarly, for family pensioners, the deduction has been increased from INR 15,000 to INR 25,000.

Read Also: Budget 2024: Explainer On Changes In SIP Taxation

How Much Tax Can You Save?

Now the main question arrives: how much can an individual actually save because of the above-mentioned changes? Let’s have an analysis on this.

We will calculate the income tax based on the new slab rates and the slab rates prior to the Budget 2024-25. Suppose Raman works in an MNC and earns INR 13,50,000 from salary in a given financial year. Considering he has no other source of income, let’s calculate his tax liability based on existing and revised slab rates of new tax regime:

Based on the existing slab rates (prior to Budget 2024-25)

Salaried Income = INR 13,50,000

Net Income after standard deduction of INR 50,000 = INR 13,00,000

Tax Calculation

Slab (INR)	Income Tax Rate	Income Tax (INR)
Up to 3,00,000	0%	0
3,00,001 to 6,00,000	5%	15,000
6,00,001 to 9,00,000	10%	30,000
9,00,001 to 12,00,000	15%	45,000
12,00,001 to 13,00,000	20%	20,000

Total tax payable as per the existing slabs of new tax regime is INR 1,10,000.

Based on New Slab Rates (announced in Budget 2024-25)

Salaried Income = INR 13,50,000

Income after Standard Deduction of INR 75,000 = INR 12,75,000

Tax Calculation

Slab (INR)	Income Tax Rate	Income Tax (INR)
Up to 3,00,000	0%	0
3,00,001 to 7,00,000	5%	20,000
7,00,001 to 10,00,000	10%	30,000
10,00,001 to 12,00,000	15%	30,000
12,00,001 to 12,75,000	20%	15,000

Total tax payable as per latest slabs of the new tax regime is INR 95,000.

So, in our example, if an individual is earning INR 13.5 lakhs from salary, then he or she can save INR 15,000 in taxes based on the revised tax slabs under new tax regime.

Read Also: Budget 2024: F&O Trading Gets More Expensive?

Conclusion

In summation, the tax slab rate changes for new tax regime introduced in Budget 2024, along with an increase in the standard deduction, will result in increased tax savings for the middle class. The reduced tax liability will result in a rise in disposable income, resulting in an increase in consumption and ultimately end up in boosting the growth of the Indian economy.

However, you must be wondering why the government has announced these changes. If people pay less tax, doesn’t that mean the government earns less? The answer to this is not that simple. There are a few changes announced in the Budget 2024-25 which are not beneficial for the general public. For example, there’s an increase in the Short-Term and Long-Term Capital Gains tax rates, removal of the indexation benefit for real estate, etc. We’ll discuss these changes in more detail in another blog.

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