In the recent updates to India’s tax regulations, there’s been a notable change that’s catching the attention of taxpayers: an income up to Rs 7 lakh, potentially not attracting any income tax. This article demystifies how the new tax rules make this possible and what you need to know to avail yourself of this benefit.
New Tax Slabs and Rates
The new tax regime has introduced revised tax slabs and rates. The structure begins with zero tax for income up to Rs 3 lakh and scales up to higher percentages for larger income brackets.
This progressive system ensures that lower-income earners have a reduced tax liability, and for those earning up to Rs 7 lakh, the tax can be zeroed out with the help of rebates and deductions.
Tax Slab for FY 2024-25
Tax Rate
Tax Slab for FY 2023-24
Tax Rate
Between 0 and 3,00,000
Nil
Between 0 and 3,00,000
Nil
Between 3,00,001 and 7,00,000
5%
Between 3,00,001 and 6,00,000
5%
Between 7,00,001 and 10,00,000
10%
Between 6,00,001 and 9,00,000
10%
Between 10,00,001 and 12,00,000
15%
Between 9,00,001 and 12,00,000
15%
Between 12,00,001 and 15,00,000
20%
Between 12,00,001 and 15,00,000
20%
Above 15,00,001
30%
Above 15,00,001
30%
For taxpayers who opt for the new regime in FY 2024-25 (AY 2025-26), several additional deductions are available, including:
– Family Pension deductions now allow a maximum of Rs 25,000, up from the previous Rs 15,000 cap.
– The Standard Deduction for salaried individuals has increased from Rs 50,000 to Rs 75,000.
– Employer contributions to pension schemes under Section 80CCD (2) have been raised from 10% to 14% of salary.
Impact of the Increased Exemption Limit
For the fiscal year 2023-24, if you choose the new tax regime, you are privy to a considerable advantage: How 7 lakh income is tax-free becomes a practical reality for you.
The need to file an income tax return (ITR) becomes optional if your gross taxable income does not exceed the Rs 3 lakh mark.
Additionally, the enhanced basic exemption limit contributes to substantial tax savings. For instance, if your income falls between Rs 2.5 lakh and Rs 3 lakh, you now stand to gain more from the new tax regime compared to the old one, which retains the Rs 2.5 lakh exemption limit.
significant update in the new tax regime is the uplifted rebate under section 87A. The rebate, previously set at Rs 12,500, has now been increased to Rs 25,000. This is a strategic move that directly benefits those opting for the new tax regime with a taxable income of Rs 7 lakh, as they now become eligible for this enhanced rebate.
For individuals who choose the new tax regime and have a taxable income up to Rs 7 lakh, there’s a substantial financial advantage: they are not required to pay any taxes at the time of filing their Income Tax Returns (ITR). The increase in the rebate under section 87A, which was previously applicable for incomes up to Rs 5 lakh, has now been extended to cover incomes up to Rs 7 lakh. Therefore, in the financial year 2023-24, when you file your ITR for the assessment year 2024-25 and select the new tax regime, if your taxable income does not exceed Rs 7 lakh, you will be exempt from paying taxes.
The New Tax Regime as the Default
At the start of FY 2023-24, salaried individuals can choose between the old or new tax regime, with the new regime set as the default. This choice is communicated to their employer and cannot be changed mid-year. However, they have the option to switch to a different regime when filing their tax returns in July 2024, with the same rules applying in FY 2024-25.
The income tax filing deadline for FY 2023-24 (AY 2024-25) is 31 July 2024. If the initial deadline is missed, a delayed filing is allowed until 31 December 2024.
If salaried employees don’t specify a choice, tax is deducted under the default new regime. They can switch between regimes each year as desired. Non-salaried individuals make their regime selection when filing and are not required to inform anyone beforehand.
However, individuals, Associations of Persons (AOPs), Hindu Undivided Families (HUFs), Bodies of Individuals (BOIs), or Artificial Juridical Persons with business or professional income cannot switch between the two tax regimes annually. If they opt out of the new tax regime, they can only switch back to it once. After making that switch, they will not have the option to revert to the old regime in the future.
The Roadmap to Achieving a Tax-free Income of Rs 7 Lakh
Navigate the new tax laws effectively, one must understand the roadmap to achieving a tax-free income of Rs 7 lakh:
1 – Assess your income: Understand your gross income and categorize it appropriately to determine your taxable income.
2 – Opt for the new tax regime: Elect to adopt the new tax regime when filing your returns. This regime offers the Rs 7 lakh exemption threshold.
3 – Maximise deductions: Make prudent investments and expenditures that qualify for deductions under the new regime.
4 – Utilize the rebate: Ensure that your taxable income falls within the Rs 7 lakh bracket to take full advantage of the Section 87A rebate.
5 – Filing your returns: Accurately file your income tax returns, claiming the rebate and deductions to reduce your taxable income to nil.
Conclusion: Navigating towards a tax-free income
The revised tax regime in India presents an opportunity for individuals earning up to Rs 7 lakh to reduce their tax liability significantly. The higher exemption limit, the introduction of the enhanced Section 87A rebate, and the restructured tax slabs all contribute to this possibility.
For those who are still navigating these changes or for anyone seeking to understand how to maximize their tax benefits, Tata Capital’s Moneyfy can provide tailored guidance. By carefully planning and understanding the new tax laws, taxpayers can not only comply with their tax obligations but also improve their financial well-being.
This journey to a tax-free income is not just about understanding the new laws but also about effectively applying them to your financial planning. With the right approach, an income of up to Rs 7 lakh can indeed be free from tax, and you can enjoy the benefits of your hard-earned money to its fullest.
Which is better between the old tax regime and the new tax regime?
The best choice depends on individual circumstances. It’s helpful to compare potential tax liabilities under both regimes using the Income and Tax Calculator on the Income Tax Portal to decide based on your financial needs.
What is the difference between the old and new tax regimes?
The old regime has different tax slabs, higher rates, and allows various deductions and exemptions. The new regime offers lower tax rates but limits the deductions and exemptions available to taxpayers.
Am I eligible for Rs. 50,000 standard deduction in the new tax regime?
Yes, a standard deduction of Rs. 50,000, or the actual salary (whichever is lower), is available in both the old and new tax regimes starting from AY 2024-25.
What is the limit for deductions under Section 80D?
Section 80D allows a tax deduction of up to Rs. 25,000 for health insurance premiums per year, increasing to Rs. 50,000 for senior citizens aged 60 and above.
I am filing ITR in a new regime for AY 2024-25. Can I switch between the old and new tax regime in the next few years?
If you have business income, you cannot switch between regimes every year. Once you opt out of the new regime, you get only one chance to switch back. Non-business income earners, however, can switch annually by the filing due date.
How much income is tax-free in India in 2024?
Under the old regime, those under 60 could claim an exemption of up to Rs. 2.5 lakhs, senior citizens up to Rs. 3 lakhs, and super senior citizens (80+) up to Rs. 5 lakhs.
Can I claim 80C deductions and opt for the new income tax regime?
No, Section 80C deductions are not available in the new regime. Taxpayers choosing the new tax slabs must forgo 80C and most other deductions, affecting their taxable income.
02 December 2024
5 mins read
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