Union Budget 2025: The Indian government has introduced significant changes to the income tax structure, particularly under the new tax regime, which could benefit millions of taxpayers. For individuals earning up to ₹12 lakh annually, the new slabs offer the possibility of paying zero tax, provided they meet certain conditions. However, the new rules also come with nuances, especially concerning capital gains, which taxpayers need to understand to make informed decisions.
The new tax regime, introduced in the Union Budget 2023, aims to simplify the tax structure and provide relief to middle-income earners. Under this regime, individuals with an annual income of up to ₹7 lakh are exempt from paying any tax. For those earning up to ₹12 lakh, the tax liability can be reduced to zero if they claim the standard deduction of ₹50,000 and make investments under Section 80C, such as in provident funds or life insurance policies.
This move is designed to encourage more people to opt for the new tax regime, which does not allow for most deductions and exemptions available under the old regime. The government hopes that the simplicity and lower tax rates will make the new regime more attractive, especially for salaried individuals and young professionals who may not have significant investments or deductions to claim.
However, the new regime is not without its complexities. One area where taxpayers need to be cautious is capital gains. Under the new rules, capital gains from the sale of assets such as property, stocks, or mutual funds are still taxable, and the exemptions available under the old regime do not apply. This means that even if your salary income falls within the ₹12 lakh threshold, any capital gains you earn will be subject to tax, potentially increasing your overall tax liability.
For example, if you sell a property or shares and earn a profit, you will need to pay tax on that profit, regardless of whether you have opted for the new tax regime. This could be a significant consideration for individuals who rely on capital gains as part of their income. Financial experts advise taxpayers to carefully evaluate their income sources and tax implications before deciding which regime to choose.
Another important aspect of the new tax regime is the standard deduction. While the old regime allowed for a variety of deductions, such as house rent allowance (HRA), leave travel allowance (LTA), and medical reimbursements, the new regime offers only a standard deduction of ₹50,000. This deduction is available to all taxpayers, regardless of their actual expenses, making it a straightforward benefit for those who prefer simplicity over detailed tax planning.
The new tax slabs under the regime are as follows:
Income up to ₹3 lakh: No tax
Income between ₹3-6 lakh: 5% tax
Income between ₹6-9 lakh: 10% tax
Income between ₹9-12 lakh: 15% tax
Income between ₹12-15 lakh: 20% tax
Income above ₹15 lakh: 30% tax
These slabs are designed to reduce the tax burden on middle-income earners while ensuring that higher-income individuals contribute a fair share. For someone earning ₹12 lakh, the tax liability under the new regime would be ₹45,000, but with the standard deduction and investments under Section 80C, this can be brought down to zero.
Despite the benefits, the new regime may not be suitable for everyone. Those with significant investments, home loans, or other deductions may find that the old regime offers more savings. For instance, under the old regime, taxpayers can claim deductions for interest on home loans, education loans, and contributions to charitable institutions, among others. These deductions can significantly reduce taxable income, making the old regime more advantageous for some.
Financial planners recommend that individuals assess their financial situation and consult a tax advisor before making a decision. Factors such as income level, investment habits, and future financial goals should be taken into account. For young professionals with minimal investments and a preference for simplicity, the new regime may be the better choice. On the other hand, individuals with complex financial portfolios may benefit more from the old regime.
The government’s push for the new tax regime is part of a broader effort to streamline the tax system and increase compliance. By offering lower tax rates and fewer complications, the regime aims to make it easier for taxpayers to file their returns and reduce the burden of tax planning. However, the trade-off is the loss of several deductions that could otherwise lower taxable income.
In conclusion, the new income tax regime presents an attractive option for many taxpayers, particularly those earning up to ₹12 lakh. The possibility of paying zero tax, combined with the simplicity of the new system, makes it a compelling choice for salaried individuals and young professionals. However, the regime’s limitations, especially regarding capital gains and deductions, mean that it may not be the best fit for everyone. Taxpayers are encouraged to carefully evaluate their options and seek professional advice to make the most informed decision.
As the new tax regime gains traction, it will be interesting to see how it impacts tax compliance and revenue collection in the long run. For now, it offers a simplified and potentially beneficial alternative for those looking to reduce their tax burden without the hassle of extensive financial planning. Whether you choose the new regime or stick with the old one, understanding the implications of your decision is key to maximizing your savings and achieving your financial goals.
