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The Union Budget 2024-25, presented by Finance Minister Nirmala Sitharaman on July 23, 2024, introduced significant modifications to direct taxes, particularly affecting salaried individuals. The most notable change is the substantial increase in the standard deduction for salaried taxpayers, now reaching ₹75,000. This move, intended to lower taxable income and boost disposable income, is especially advantageous for those opting for the new tax regime, which has also seen revisions in its tax brackets.
The new tax regime, designed to streamline tax filing and enhance disposable income for salaried individuals, has been made more attractive through these budget amendments. The revised tax brackets for FY 2024-25 (AY 2025-26) offer a lower tax rate for individuals earning up to ₹7 lakhs, with higher thresholds for the subsequent tax brackets. This is expected to translate into a larger share of earnings retained by individuals, potentially leading to increased spending and economic growth.
However, opting for the new tax regime comes with trade-offs. While it offers a higher standard deduction and simplified tax filing, it also eliminates certain deductions and exemptions available under the old regime, such as House Rent Allowance (HRA), travel expenses, and medical insurance premiums. Therefore, individuals must carefully analyze their financial situation and specific deductions they claim to determine if switching to the new tax regime is beneficial. This requires an assessment of their overall tax liability under both regimes, factoring in their income, expenses, and preferred investment strategies.
The budget's attempt to incentivize the new tax regime through higher standard deductions and revised tax brackets is a strategic move to simplify the tax system and potentially increase economic activity. However, the decision of whether to embrace this new regime remains a personal one, requiring a thorough understanding of its implications and a careful evaluation of individual circumstances. The key takeaway is that individuals should be informed and empowered to make an informed choice based on their unique financial profile.