As soon as the Budget 2024-25 announced, the middle class is keenly examining how it will affect their financial situation. Key factors influencing this include individual income levels, the chosen tax regime, and the nature of their investments.
A significant change announced by Finance Minister Nirmala Sitharaman is the adjustment of tax slabs and an increase in the standard deduction to Rs 75,000. This adjustment will result in an annual tax saving of Rs 17,500. Additionally, since this reduction also lowers the health and education cess by Rs 700 (which is 4% of Rs 17,500), the total savings come to Rs 18,200.
Who Benefits from the New Tax Regime?
Under the new tax regime, the enhanced standard deduction and updated tax slabs provide relief for many middle-class taxpayers. For example, those earning up to Rs 7.75 lakh per year can now avoid paying any taxes.
Here’s the breakdown: Income up to Rs 3 lakh remains tax-free. Income between Rs 3 lakh and Rs 7 lakh is taxed at 5%. Thus, someone earning Rs 7 lakh would face a tax liability of Rs 20,000. However, a rebate of Rs 25,000 under Section 87A nullifies this tax. Including the new standard deduction of Rs 75,000 ensures that individuals with incomes up to Rs 7.75 lakh will pay no taxes.
Old Tax Regime Remains Unchanged
The old tax regime has not been altered by Budget 2024. For those sticking with this regime, the new tax slab changes do not apply. The old regime may still be more advantageous for individuals who claim deductions such as HRA, LTA, 80C, and 80D. Conversely, the new tax regime might be more beneficial for those who do not use these deductions.
Changes to Capital Gains Taxes
The Budget also introduces adjustments to capital gains taxation. Short-term capital gains from equities will now face a 20% tax rate, up from the previous 15%. For instance, if you earn Rs 2 lakh from equities in a year, the tax due will increase from Rs 30,000 to Rs 40,000.
Moreover, the treatment of long-term capital gains has been revised. Although the tax rate on these gains has been reduced from 20% to 12.5%, the benefit of indexation (which adjusted for inflation) has been eliminated. For example, if you purchased a property for Rs 1 crore five years ago and sell it for Rs 1.2 crore today, the removal of indexation means you will face a tax of Rs 2.5 lakh on a gain of Rs 20 lakh, whereas previously, inflation adjustment might have allowed for no capital gains tax.