New Tax Regime 2024: From implications to benefits; all you need to know

The introduction of the new tax regime in India marks a significant shift in the country's tax landscape, aimed at simplifying tax compliance and potentially reducing tax liabilities for individual taxpayers. Understanding the new regime is crucial for taxpayers to make informed decisions about their financial planning and tax strategies. 

In this comprehensive guide, we will delve into everything you need to know about the new tax regime, its implications, benefits, drawbacks, and considerations for taxpayers.

Streamline of income tax slabs under the new tax regime

Rebate

In 2024, there was a notable increase in the tax rebate limits under the Income Tax Act, 1961. The new tax regime now offers a full tax rebate on income up to ₹7 lakhs under Section 87A. This means that taxpayers whose income does not exceed ₹7 lakhs are eligible for a rebate that reduces their tax liability to zero.

Comparatively, the tax rebate limit under the old tax regime for the financial year 2023-24 was ₹5 lakhs. This adjustment reflects the government's aim to provide relief to middle-income earners by allowing them to retain more of their earnings.

Additionally, individuals claiming a standard tax deduction of ₹50,000 can enjoy no tax liability on incomes up to ₹7.5 lakhs.

Reduce surcharge rates for high income individuals

Under the revised new tax regime, the surcharge rate for taxpayers earning income over ₹5 crores has been reduced from 37% to 25%. This adjustment applies exclusively to individuals who choose the new tax regime and possess an income exceeding ₹5 crores.

How to save income tax as per the new tax regime

Employer’s contribution to the NPS and PF: Most employees have Provident Fund (PF) deductions, where 12% of their basic salary is contributed by both the employee and the employer.

For instance, if the basic salary is ₹20,000 per month, the employee contributes ₹2,400 and the employer matches this with another ₹2,400. Importantly, the employer's contribution is not taxable, regardless of whether you are under the old or new tax regime, up to a total contribution of ₹7.5 lakh per financial year. However, the employee's 12% contribution is part of their taxable income, exempt under Section 80C in the old tax regime but not in the new regime.

Similarly, contributions to the National Pension System (NPS) by employees, up to 10% of the basic salary under Section 80CCD(2), are tax exempt in both tax regimes, with the same ₹7.5 lakh limit per year. Employees can request their HR to opt for the employer's NPS contribution under Section 80CCD(2), although employer policies may vary.

Interest on the home loan for a let-out property: Under Section 24(b) of the Income Tax Act, interest paid on a home loan taken for a property that is let out is deductible from the rental income. This provision applies to both the old and new tax regimes, effectively reducing the taxable rental income and thereby lowering the tax liability.

• Principal repayment - Under the old tax regime, principal repayment of up to ₹1.5 lakh annually is tax deductible under Section 80C. This deduction is not available in the new tax regime.
• Interest on self-occupied property - In the old tax regime, for self-occupied properties where possession is received, interest paid on the home loan is deductible up to ₹2 lakh annually. This deduction is not available in the new tax regime for self-occupied properties.
• Interest on let-out property - Both old and new tax regimes allow deduction of interest paid on a home loan for let-out properties. This deduction reduces the taxable rental income.
• Standard deduction - A standard deduction of 30% of the net annual value of the property can be claimed. This deduction is derived after deducting municipal taxes from the gross annual value of the property.
• Treatment of losses - Under the new tax regime, losses from rental properties cannot be set off against other incomes nor carried forward to subsequent years. This differs from the old regime where such losses were eligible for set-off.
• Deemed rental income - Properties lying vacant are subject to deemed rental income calculations under certain conditions. If more than two properties are vacant, deemed rental income must be included in tax calculations.

Reimbursements from the employer: Many companies offer various reimbursements as part of an employee's Cost to Company (CTC), which can include expenses for fuel, travel, driver's salary, home office setup, internet, books, and periodicals. These reimbursements are tax-free under both the old and new tax regimes, provided the employee submits the required bills and proofs.

It's crucial to note that these reimbursements are structured within your CTC or salary package. Failure to provide necessary proofs may result in these amounts being taxed as part of your income. Under the new tax regime, these reimbursements remain tax-free because they are treated as expenses incurred for your employer's business purposes, reimbursed to you.

Employees should consult with their HR or accounts department for details on available reimbursements and ensure compliance with submission requirements outlined in their employment offer letter or company policy.

Other tax avenues

• Deduction of 33.33% or ₹15,000 (whichever is lower) on family pension, which is the pension received by family members after the pensioner's death.
• Gifts of up to ₹50,000.
• Gratuity of up to ₹20 lakh under Section 10(10).
• Amounts up to ₹5 lakh received in case of voluntary retirement under Section 10(10C).
• Leave encashment of up to ₹25 lakh under Section 10(10AA), applicable upon leaving a job.
• Allowance for travel or conveyance for official purposes and transport allowance for specially-abled individuals.
• Daily allowance if the place of work differs from the usual one.
• Certain non-taxable prerequisites for official purposes, such as company-provided laptops, medical facilities, and interest-free salary loans.

In conclusion, the new tax regime in India offers a simplified approach to income tax calculation while providing lower tax rates for individual taxpayers. However, it comes with trade-offs in the form of reduced deductions and exemptions available under the old regime. Taxpayers must carefully evaluate their financial situation, investment portfolio, and long-term tax planning goals before opting for either regime.

By understanding the nuances of both tax structures and seeking professional advice when needed, taxpayers can effectively navigate the complexities of taxation and maximise their financial outcomes in alignment with their personal and professional aspirations.

Rohit Gyanchandani is Managing Director at Nandi Nivesh Private Limited