As of December 30, 2024, the Indian government has implemented several changes to the income tax rules for the financial year (FY) 2024-25, corresponding to the assessment year (AY) 2025-26. These modifications aim to provide tax relief to individuals and stimulate economic growth.
Key Changes in Income Tax Rules for FY 2024-25 (AY 2025-26):
1. Revised Income Tax Slabs under the New Tax Regime:
The new tax regime has become the default tax system, though taxpayers retain the option to choose the old regime. The updated tax slabs are as follows:
Annual Income (₹) Tax Rate (%)
Up to 3,00,000 Nil
3,00,001 to 7,00,000 5
7,00,001 to 10,00,000 10
10,00,001 to 12,50,000 15
12,50,001 to 15,00,000 20
Above 15,00,000 25
These adjustments are designed to reduce the tax burden on middle-income earners and encourage consumption.
2. Increased Standard Deduction:
The standard deduction under the new tax regime has been increased to ₹75,000 from the previous ₹50,000 for salaried individuals and pensioners. For family pensioners, the deduction has been raised to ₹25,000 from ₹15,000. This enhancement aims to provide additional relief to taxpayers.
3. Higher Deduction on Employer’s Contribution to NPS:
Individuals opting for the new tax regime can now claim a deduction of up to 14% of their basic salary for their employer’s contribution to the National Pension System (NPS), an increase from the earlier 10%. This change is intended to promote retirement savings among employees.
4. Surcharge Cap:
The maximum surcharge under the new tax regime is capped at 25%, whereas, under the old tax regime, it can go up to 37% for higher income brackets. This cap is expected to make the new tax regime more attractive to taxpayers.
5. Optional Old Tax Regime:
While the new tax regime is now the default, taxpayers have the option to opt for the old tax regime, which includes various exemptions and deductions. This flexibility allows individuals to choose the tax structure that best suits their financial situation.
Considerations for Taxpayers:
• Assessment of Tax Liability: Taxpayers should evaluate their income, eligible deductions, and exemptions under both regimes to determine which option results in a lower tax liability.
• Filing of Income Tax Returns (ITR): The changes introduced in FY 2024-25 will impact the ITR filing process in 2025. Taxpayers should stay informed about the latest rules to ensure accurate and timely filing.
• Professional Consultation: Given the complexities involved, consulting with a tax professional or financial advisor is advisable to navigate the new tax provisions effectively.
These updates reflect the government’s efforts to simplify the tax system and provide relief to taxpayers, thereby fostering economic growth through increased disposable income and consumption.