
The Indian income tax system has witnessed significant changes in the past six months, following the announcement of Budget 2024-25. These changes are designed to simplify the tax regime and encourage taxpayers to adopt the new tax system. While some adjustments provide relief to middle-income taxpayers, others focus on tracking high-value transactions and modifying investment patterns. Here’s a breakdown of the five major changes you need to know.
Table of Contents
Revamped Tax Slabs under the New Regime
One of the most significant changes introduced in Budget 2024-25 is the revision of income tax slabs under the new tax regime. These changes aim to provide greater relief to taxpayers, particularly those in the middle-income bracket. Here’s a look at the new tax structure:
- Income up to ₹3 lakh: No tax
- ₹3 lakh – ₹6 lakh: 5% tax
- ₹6 lakh – ₹9 lakh: 10% tax
- ₹9 lakh – ₹12 lakh: 15% tax
- ₹12 lakh – ₹15 lakh: 20% tax
- Above ₹15 lakh: 30% tax
This revised structure is expected to result in savings of up to ₹17,500 for middle-income taxpayers, making the new regime more attractive and encouraging more people to switch from the old system.
Increased Standard Deduction Limits
The government has increased the standard deduction limit, providing additional relief to salaried individuals and pensioners.
- The standard deduction for salaried taxpayers has risen from ₹50,000 to ₹75,000.
- For family pensioners, the limit has increased from ₹15,000 to ₹25,000.
This enhancement ensures higher disposable income for individuals and supports retired taxpayers by easing their financial burden.
Boost to NPS Contributions
To promote retirement savings, the deduction limit for an employer’s contribution to the National Pension System (NPS) has been raised:
- From 10% of salary to 14% of salary.
This change is especially beneficial for government employees, encouraging them to save more for their future. For private-sector employees, the increased contribution cap motivates employers to provide better retirement benefits.
Changes in Capital Gains Tax
The capital gains tax regime has also undergone notable adjustments:
- Short-Term Capital Gains (STCG): Tax rate increased from 15% to 20%.
- Long-Term Capital Gains (LTCG): Tax rate increased from 10% to 12.5%.
- LTCG Exemption Limit: Raised from ₹1 lakh to ₹1.25 lakh for equity investments.
These changes are designed to promote long-term investments while also ensuring higher tax revenue from short-term gains.
Tax Collection at Source (TCS) on Luxury Goods
To monitor high-value transactions and curb tax evasion, a Tax Collection at Source (TCS) has been introduced for luxury goods exceeding ₹10 lakh in value. This rule came into effect on January 1, 2025.
This move enhances transparency in expensive purchases and ensures that taxpayers dealing in high-value goods contribute their fair share to the tax system.
Impact of the New Rules
These changes bring about several notable impacts:
- Relief for Middle-Income Groups: Revised tax slabs and increased deductions provide more disposable income to the middle class.
- Encouragement for the New Tax Regime: The simplified and beneficial structure aims to attract more taxpayers to transition from the old regime.
- Shift in Investment Strategies: Changes in LTCG exemptions encourage long-term investments over short-term trading.
- Increased Monitoring of High-Value Transactions: TCS implementation ensures better tracking of luxury purchases.
Tips for Effective Tax Planning
To navigate the new tax rules, taxpayers should consider these strategies:
- Evaluate Old vs. New Regime: Assess your income, deductions, and expenses to determine the more beneficial tax regime.
- Maximize NPS Contributions: Take advantage of the increased employer contribution limit.
- Focus on Long-Term Investments: Leverage the higher LTCG exemption limit for equity investments.
- Plan Luxury Purchases Strategically: Be mindful of the TCS rules to avoid surprises during high-value transactions.
Conclusion
The changes introduced in Budget 2024-25 reflect the government’s efforts to simplify the tax system, offer relief to the middle class, and improve transparency in financial transactions. As taxpayers gear up for the Union Budget 2025-26, these new rules set a foundation for informed financial planning.
Adapting to these changes can help taxpayers optimize their financial decisions while staying compliant with the evolving tax landscape.