Author : Ananya Das, LLM student , Faculty of Law, University of Delhi.
Content
- Abstract
- Introduction to Budget 2024
- Understanding Income Tax Slabs
- The New Tax Regime
- Key Changes in Budget 2024
- Detailed Impact on Different Segments of Taxpayers
- Broader Economic Implications
- Critiques and Challenges
- Conclusion and Future Outlook
Abstract
This article analyzes the transformative changes introduced in the Indian Union Budget 2024, focusing on the revisions to income tax slabs and their wide-ranging implications. With a commitment to stimulate economic growth and enhance taxpayer relief, the budget proposes significant adjustments, including increased basic exemption limits and higher deduction thresholds under section 80C. The article analyzes the effects on various income segments—highlighting how lower and middle-income earners stand to benefit most, while higher-income taxpayers may see minimal immediate relief. Additionally, it explores the broader economic implications , including potential boosts in disposable income, increased consumer spending, and enhanced compliance rates. While the budget aims to foster a more equitable tax system, critiques regarding sustainability and implementation challenges are also addressed. Overall, the budget reflects a strategic approach to balancing economic growth with social equity, setting the stage for an evolving fiscal landscape in India.
- Introduction
The Indian Union Budget for 2024 has emerged as a critical framework aimed at reshaping the economic landscape of the country. It has been a focal point of discussion for taxpayers, economists, and policymakers alike. With various proposals aimed at stimulating economic growth and ensuring equitable distribution of resources, the budget’s implications for individual taxpayers are particularly significant. One of the most scrutinized components of the budget is the revision of income tax slabs. This article will decode the proposed changes, analyze their impact on different segments of taxpayers, and provide insights into the broader economic implications.
- Understanding the Income Tax Slabs
Income tax slabs are an essential component of a country’s tax system, dictating how much individuals owe based on their income levels. India employs a progressive tax system, where higher income earners are taxed at elevated rates. This structure aims to promote social equity and fund public services, enabling the government to redistribute wealth more effectively.
- Current Tax Structure
Here are the slab rates applicable for FY 2023-24(AY 2024-25) and FY 2024-25(AY 2025-26) under the old tax regime are structured as follows:
Income tax slabs for individuals under Old Tax Regime
Slabs
Individuals of Age < 60 years and NRIs
Resident Senior Citizens (60- less than 80 years)
Resident Super Senior Citizens (80 years and above)
– Up to ₹2.5 lakhs
: Nil
:Nil
: Nil
-₹2.5 lakhs to ₹3 lakhs
: 5%
: Nil
: Nil
– ₹3 lakhs to ₹5 lakhs
: 5%
: 5%
: Nil
– ₹5 lakhs to ₹10 lakhs
: 20%
: 20%
: 20%
– Above ₹10 lakhs
: 30%
: 30%
: 30%
The new tax regime until 31st March 2023, introduced in the 2023 budget, provided a simplified structure aimed at enhancing compliance and encouraging voluntary disclosure. The slabs were:
Income Tax Slab Rates For FY 2022-23 (AY 2023-24)
Income Slabs
Income Rates (for all age categories)
– Up to ₹2.5 lakhs
: Nil
– ₹2.5 lakhs to ₹5 lakhs
: 5%
– ₹5 lakhs to ₹7.5 lakhs
: 10%
– ₹7.5 lakhs to ₹10 lakhs
: 15%
– ₹10 lakhs to ₹12.5 lakhs
: 20%
– ₹12.5 lakhs to ₹15 lakhs
: 25%
– Above ₹15 lakhs
: 30%
- Key Changes in Budget 2024
In the 2024 budget, significant revisions to these slabs were proposed to alleviate the tax burden on middle-income earners while encouraging economic participation. The key changes include:
- Revised Income Tax Slab Rates AY 2025-26 (FY 2024-25)– For New Regime:
Income Slabs
Income Rates
– Up to ₹3 lakhs
: Nil
– ₹3 lakhs to ₹7 lakhs
: 5%
– ₹7 lakhs to ₹10 lakhs
: 10%
– ₹10 lakhs to ₹12 lakhs
: 15%
-₹12 lakhs to ₹15 lakhs
: 20%
-Above ₹ 15 lakhs
: 30%
Revised Income Tax Slab Rates AY 2024-25 (FY 2023-24)– For New Regime:
Income Slabs
Income Tax Rates
-Upto ₹ 3 lakhs
: Nil
-₹3 lakhs to ₹ 6 lakhs
: 5%
– ₹6 lakhs to ₹9 lakhs
: 10%
– ₹9 lakhs to ₹12 lakhs
: 15%
– ₹12 lakhs to ₹15 lakhs
: 20%
– Above ₹15 lakhs
: 30%
- Increase in Deduction Limits : The government raised the deduction limit under section 80C from ₹1.5 lakhs to ₹2 lakhs. This change allows individuals to invest more in tax-saving instruments, fostering a culture of savings.
3. Standard Deduction : The existing standard deduction of ₹50,000 for salaried individuals and pensioners remains intact, providing additional relief.
4. Tax Relief for the Middle Class : By lowering the effective tax rate for middle-income groups, the budget aims to increase disposable income, thereby promoting consumption.
These measures reflect the government’s strategic approach to addressing the needs of a growing middle class while ensuring higher earners contribute fairly to national revenue.
- Detailed Impact on Different Segments of Taxpayers
The Indian government’s 2024 budget has introduced sweeping changes to the income tax structure, setting off a chain reaction of implications for different segments of taxpayers. Understanding the nuanced impacts of these alterations is vital for individuals to make informed financial decisions and for the country to navigate its economic trajectory.
- A Breath of Fresh Air for Lower-Income Taxpayers (Up to ₹6 Lakhs)
The revised tax slabs represent a substantial win for lower-income earners. In a move that acknowledges the struggles of those at the bottom of the economic ladder, the government has created a more progressive tax structure that alleviates the burden on this vulnerable group. Under the new regime, those earning up to ₹3 lakhs will incur no tax, while those earning between ₹3 lakhs and ₹6 lakhs will only pay a 5% tax rate. This change can lead to significant savings, allowing these individuals to allocate more of their hard-earned income towards essential expenses, savings, and investment. The extra money in their pockets can be the difference between barely scraping by and building a foundation for financial stability.
Example: An individual earning ₹5 lakhs would previously pay ₹12,500 in taxes under the old regime but would now only owe ₹10,000 under the new structure. This change provides an additional ₹2,500 in disposable income, money that can be directed towards bettering their living situation, securing their future, or simply enjoying some of the fruits of their labor.
- A Bonanza for Middle-Income Taxpayers (₹6 Lakhs to ₹12 Lakhs)
Union Budget 2024 Highlights: Finance Minister Nirmala Sitharaman announced a thorough review of the Income Tax Act of 1961 to benefit the middle class.
This group is poised to benefit the most from the newly proposed slabs. The marginal tax rates for individuals in this income bracket have been reduced, resulting in a lower overall tax burden and increased disposable income. This demographic, often considered the backbone of the economy, will now have more financial flexibility to pursue their goals. This additional income can stimulate spending in various sectors, further invigorating economic growth. As they redirect their tax savings towards consumption and investment, they’ll help power the engines of economic expansion.
Example: A taxpayer earning ₹10 lakhs will pay ₹1,00,000 in taxes under the new regime, compared to approximately ₹1,20,000 under the old structure. This change reflects a significant saving, which can be redirected towards investments, consumption, or savings. The increased financial breathing room can allow them to plan for the future, enjoy the present, and contribute to the nation’s prosperity.
- Limited Immediate Relief for Higher-Income Taxpayers (Above ₹12 Lakhs)
For higher-income individuals, the proposed tax changes provide minimal immediate relief, as they continue to pay the top rate of 30%. While they may not reap the same direct benefits as their lower- and middle-income counterparts, they still stand to gain in a more dynamic economy. However, the increase in basic exemption limits and the enhanced deduction options may provide some marginal benefits. These wealthier taxpayers will still need to navigate the complexities of the tax code to optimize their obligations.
Example: A taxpayer earning ₹15 lakhs will still owe ₹4,50,000 in taxes, but the additional deductions and exemptions can offer slight financial relief, promoting a balanced approach to taxation. The government has struck a balance between ensuring a contribution from higher earners and incentivizing productive financial behavior.
- Broader Economic Implications
1. Increased Disposable Income and Consumption
The reduction in tax liabilities, especially for middle- and lower-income groups, is expected to enhance disposable income significantly. With more money in hand, these groups are likely to increase consumption, driving demand for goods and services. This consumption-led growth can stimulate various sectors of the economy, including retail, manufacturing, and services.
2. Encouragement of Savings and Investments
By raising the deduction limits, the government is actively promoting a culture of savings and investments. The increase in deductions under section 80C allows taxpayers to invest more in avenues like Public Provident Fund (PPF), Equity-Linked Saving Scheme (ELSS), and National Pension System (NPS). This shift can lead to increased capital formation, essential for sustainable economic growth.
3. Enhanced Compliance and Simplification
The simplification of tax slabs aims to increase compliance among taxpayers. A more straightforward tax structure can reduce confusion and encourage voluntary disclosures. The government’s efforts to streamline the tax code could lead to higher overall tax collections as more individuals and businesses comply with tax regulations. This, in turn, will give the government more resources to invest in public goods and services.
4. Impact on Government Revenues
While the immediate impact of these tax cuts may be a decrease in revenue from individual income taxes, the long-term effect could be beneficial. Increased consumer spending could boost indirect tax revenues, such as Goods and Services Tax (GST), offsetting any short-term losses in direct tax collections. The government may also benefit from higher corporate tax revenues as businesses thrive from increased demand, leading to a more dynamic tax base. The interplay between different tax sources and economic activity will be crucial to monitor in the coming years.
- Critiques and Challenges
Despite the apparent advantages, the budget has faced criticism from various stakeholders:
1. Sustainability of Tax Cuts : Critics express concern that while tax reductions may stimulate growth, they could undermine the government’s ability to fund essential services and infrastructure projects in the long term. There is apprehension about potential fiscal deficits arising from reduced income tax revenues.
2. Equity Concerns : While the budget addresses middle-income groups, some experts argue it does not adequately cater to lower-income taxpayers who continue to struggle with rising inflation and economic instability. Ensuring a balanced approach that supports all income levels is vital.
3. Implementation Challenges : The practical aspects of implementing these tax changes can be complex. Taxpayers may find it challenging to navigate between the old and new tax regimes, especially regarding the decision of which structure to opt for. This complexity may lead to confusion and unintentional non-compliance. The government will need to provide robust guidance and support to help taxpayers adapt to the new landscape.
- Conclusion
The Budget 2024 represents a significant step forward in reshaping the income tax landscape in India. By revising income tax slabs and increasing deduction limits, the government aims to stimulate economic growth while providing relief to taxpayers, particularly in the middle-income bracket. These changes have the potential to reinvigorate the economy, empower individuals, and set a course for sustained development. The implications of these changes are profound, potentially fostering increased consumption and savings. However, the successful realization of these benefits will hinge on effective implementation, sustained economic growth, and the government’s ability to maintain fiscal discipline. As taxpayers adapt to this new framework, understanding the intricacies of the changes will be crucial for informed financial planning.
Overall, the budget reflects a proactive approach to taxpayer welfare and economic development, highlighting the delicate balance required to drive growth while ensuring social equity. The path ahead will necessitate careful monitoring and responsiveness to the evolving economic landscape. As India navigates this new chapter in its economic journey, all stakeholders will need to remain adaptable, informed, and committed to the nation’s shared prosperity.
- References
1. Ministry of Finance, Government of India. (2024). “Union Budget 2024-25”. Retrieved from (https://www.indiabudget.gov.in)
2. Economic Times. (2024). “Impact of Budget 2024 on Indian Taxpayers”. Retrieved from (https://economictimes.indiatimes.com)
3. Financial Express. (2024). “Decoding the New Income Tax Slabs in Budget 2024”. Retrieved from (https://financialexpress.com)
4. LiveMint.(2024).“Analysis of Income Tax Changes in Budget 2024”. Retrieved from (https://www.livemint.com)
5. The Hindu. (2024). “Budget 2024: Implications for the Middle Class”. Retrieved from (https://www.thehindu.com)
