New tax proposals to make New Tax Regime more lucrative for salaried taxpayers

The Finance Minister, while presenting the Finance Bill, emphasised the Government's priority and focus on employment and skilling. Several measures and incentives were proposed in the Finance Bill, which were tabled in the Parliament.
Some of the amendments and benefits proposed are as under:

1. Rejigging of the tax rates
As part of the continued efforts of the Government to make the New Tax Regime (NTR) more lucrative for taxpayers, the income slabs under the regime have undergone changes.

The above amendments shall provide tax relief of up to INR 10,000 (excluding surcharge and cess), proving beneficial for lower-to-mid level salaried taxpayers.

2. Increased standard deduction limit
The increment in standard deduction has been a much-awaited adjustment, especially given the rising costs of living. The current maximum limit of standard deduction has been increased from INR 50,000 to INR 75,000.

However, this enhanced limit is only proposed under NTR, making this regime particularly appealing.

The maximum standard deduction under the Old Tax Regime (OTR) shall continue to be restricted at INR 50,000.

3. Increased deduction limit for NPS contributions
Currently, the deduction for NPS contributions made by employers for private sector employees (i.e., non-government employees) is capped at 10% of the employee's salary.

However, this deduction is permitted up to 14% for Central Government employees.

To achieve parity between the Government and private sector employees regarding permissible deductions, the deduction is now enhanced to 14% of the employee's salary for the employer's contribution to NPS. Again, this enhanced limit is applicable exclusively under the NTR, giving impetus to the regime.

4. TCS and TDS credit for computation of TDS on salary
The Finance Bill proposes to allow credit of any TDS/TCS paid (on any income of the taxpayer) while calculating taxes on salary. The proposed amendment aims to ease the cash outflow challenges and streamline compliance processes for employees. This change is effective from 01 October 2024 and shall be available under NTR as well as OTR.

Once implemented, these proposals need to be considered by salaried taxpayers while selecting between NTR and OTR. Currently, NTR is the default regime for salaried taxpayers, unless chosen otherwise. Employers will need to adjust their payroll processes to accommodate these proposed amendments.

The views, thoughts and opinions expressed in the article are solely the author's and are not representative of the author's employer/ organisation.

Source:- Taxmann