Synopsis
On Feb 1, 2024, the government provided clarity on the proposed income tax reforms, highlighting how they will specifically aid the middle class by reducing their tax obligations. A breakdown of the new tax slabs and important FAQs was shared to alleviate taxpayer confusion.Key Takeaways
- New tax regime offers lower rates and more favorable slabs.
- The maximum income for nil tax liability is now Rs 12 lakh.
- Standard deduction of Rs 75,000 is applicable under the new regime.
- About 1 crore taxpayers will benefit from the increased nil tax threshold.
- Marginal relief ensures minimal tax for those slightly exceeding Rs 12 lakh income.
New Delhi, Feb 1 (NationPress) On Saturday, the government clarified how the proposed tax reforms under the new income tax slabs are designed to favor the middle class and alleviate their tax obligations.
Below are several frequently asked questions (FAQs) along with their responses, intended to dispel any uncertainties faced by taxpayers.
Q.1. What is the ‘New Regime’?
Ans. The new regime introduces lower tax rates and more advantageous slabs. However, it does not permit deductions except for specific exemptions such as: 80JJAA, 80M, and the standard deduction.
Q.2. What were the tax slabs in the previous new regime?
Ans. Under the Finance (No.2) Act, 2024, the new tax regime included these slabs applicable to individuals, Hindu undivided families, or associations of persons (excluding cooperative societies), and other entities. For those with a total income up to Rs 3,00,000, the tax rate is nil; for income between Rs 3,00,001 and Rs 7,00,000, the rate is 5 percent. The tax rate for incomes from Rs 7,00,001 to Rs 10,00,000 is 10 percent. Those earning between Rs 10,00,001 and Rs 12,00,000 face a tax rate of 15 percent, while incomes from Rs 12,00,001 to Rs 15,00,000 are taxed at 20 percent. For individuals earning above Rs 15,00,000, the tax rate is 30 percent.
Q.3. What are the new slabs introduced in the proposed new regime under the Finance Bill, 2025?
Ans. The proposed new slabs are: for individuals with total income between Rs 0-4 lakh, the tax rate will be zero percent; for those between Rs 4-8 lakh, the rate will be 5 percent; for income between Rs 8-12 lakh, it will be 10 percent. For those earning between Rs 12-16 lakh, the tax rate will be 15 percent; for incomes between Rs 16-20 lakh, the tax rate is 20 percent; and for incomes between Rs 20-24 lakh, the tax rate will be 25 percent. Individuals earning above Rs 24 lakh will be taxed at 30 percent.
Q.4. What is the highest total income for which individual taxpayers have no tax liability?
Ans. In the proposed new tax regime, the highest total income with nil tax liability for individual taxpayers is Rs 12 lakh.
Q.5. What actions must be taken to benefit from the nil tax liability?
Ans. The nil tax liability is exclusively available in the new tax regime, which serves as the default framework. To benefit from the rebate under the new regime's provisions, taxpayers only need to file a return; no further action is necessary.
Q.6. Who will benefit from the changes in tax slabs?
Ans. The new tax regime applies to individuals, Hindu undivided families, associations of persons (excluding cooperative societies), and other entities. As such, all these individuals will gain from the alterations in tax slabs.
Q.7. How will an individual earning Rs 12 lakh experience benefits from the new rates?
Ans. Previously, an individual earning Rs 12 lakh was liable to pay Rs 80,000 in taxes (under the new regime). Now, they will owe no tax on this income.
Q.8. Has the nil tax payment limit increased in this budget?
Ans. Yes, the threshold for nil tax payments in the new tax regime has been raised to Rs 12 lakh, provided the taxpayer submits an ITR to qualify for the rebate.
Q.9. What was the previous income limit for nil tax payments?
Ans. The earlier limit for nil tax payments was Rs 7 lakh. Increasing this limit to Rs 12 lakh means that around one crore taxpayers, who were previously paying taxes ranging from Rs 20,000 to Rs 80,000, will now pay no tax.
Q.10. Is a standard deduction on salary accessible in the new regime?
Ans. Yes, a standard deduction of Rs. 75,000 is available to taxpayers in the new regime. Thus, a salaried taxpayer with an income before the standard deduction of Rs 12,75,000 or less will incur no tax.
Q.11. Is a standard deduction available in the old regime?
Ans. A standard deduction of Rs 50,000 is provided in the old regime.
Q.12. How many taxpayers will benefit from the new rates and slabs?
Ans. Currently, for AY 2024-25, approximately 8.75 crore individuals have filed their ITRs. All taxpayers who were paying taxes in the new regime will gain from the adjustments in rates and slabs.
Q.13. What is the additional amount available to taxpayers due to this change?
Ans. Approximately Rs 1 lakh crore will be accessible to taxpayers as a result of the modifications in tax slabs, rates, and rebates.
Q.14. How is marginal relief provided to individuals?
Ans. In the new regime under section 115BAC(1A), marginal relief is available solely to resident individuals with incomes slightly above Rs 12 lakh. For instance, an individual with an income of Rs 12,10,000 would otherwise owe Rs 61,500 in taxes (5 percent of Rs 4 lakh + 10 percent of Rs 4 lakh + 15 percent of Rs 10,000). However, with marginal relief, the actual tax payable is Rs 10,000.
Q.15. What tax is owed by a taxpayer with an income of Rs 12,10,000? What is marginal relief?
Ans. For such taxpayers, the tax liability based on the slabs alone is Rs 61,500. However, a person earning Rs 12 lakh pays no tax. With marginal relief, it ensures that someone earning slightly more than Rs 12 lakh pays only a minimal tax equal to the amount exceeding Rs 12 lakh, allowing them to keep Rs 12 lakh. In this scenario, they would owe Rs 10,000 in taxes.
Q.16. What is the maximum rebate any taxpayer can receive?
Ans. The highest rebate available is Rs 60,000, applicable to a taxpayer with an income of Rs 12 lakh, who owes tax according to the new slabs.
Q.17. What is the total income limit for which marginal relief applies?
Ans. The total income limit for marginal relief is approximately Rs 12,75,000.
Q.18. Are special income types with specific rates, like capital gains and lottery winnings, eligible for rebates?
Ans. No rebates are available on income from capital gains, lotteries, or other income subject to special rates as per the Act. Rebates are only applicable to taxes calculated based on the slabs under section 115BAC.
Q.19. What distinguishes a rebate from marginal relief?
Ans: A rebate is a tax deduction available to taxpayers with incomes up to Rs 12 lakh in the new regime, while marginal relief ensures individuals earning just above Rs 12 lakh do not pay tax exceeding their excess income over Rs 12 lakh.
