Union Budget Introduces Tax Breaks and New Slabs: A Win for New Tax Regime Adopters

The latest union budget incentivizes taxpayers to opt for the new tax regime by offering higher standard deductions and revamped tax slabs. It also provides increased deductions on employer's NPS contributions. However, benefits such as housing loan deductions remain exclusive to the old regime.

The union budget, unveiled yesterday, provides additional incentives for taxpayers choosing the new tax regime to file their returns. According to the finance minister, over two-thirds of taxpayers selected the new regime in FY23. The proposed provisions grant a standard deduction of Rs 75,000, up from Rs 50,000, for salaried or retired individuals under the new regime, while the old regime maintains the Rs 50,000 deduction.

The budget also revises tax slabs and rates in favor of those under the new regime. The tax-exempt income threshold remains at Rs 3 lakh. However, incomes between Rs 3-7 lakh now incur a 5% tax, an increase from the previous 3-6 lakh range. Incomes from Rs 7-10 lakh attract a 10% tax, adjusted from the earlier 6-9 lakh range. Similarly, income between Rs 10-12 lakh is taxed at 15%, a change from the prior 9-12 lakh bracket, while 12-15 lakh income continues at 20%, and income above Rs 15 lakh stays at 30%.

Further, the budget raises the deduction limit for employers' NPS contributions, moving from 10% to 14% of salary for all employee categories under the new regime. Family pension deductions also see an increase, with the standard deduction for family pension rising from Rs 15,000 to Rs 25,000. Despite these benefits, the old tax regime still holds advantages, such as housing loan deductions and tax-saving investments, which the new regime does not cover.