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Published: June 18, 2024
Updated: June 18, 2024

Budget 2024: Government Plans to Raise Tax Exemption Limit to ₹5 Lakh Under New Regime

In a move aimed at providing relief to taxpayers, the Indian government is considering lowering certain personal income tax rates, as reported by multiple government officials. The upcoming budget, likely to be presented in mid-July, includes a proposal to raise the income threshold before any tax is levied from ₹3 lakh to ₹5 lakh. This change will apply exclusively to those filing returns under the new tax regime.

Details of the New Tax Regime

The new tax regime was introduced in Budget 2020, offering taxpayers a choice between the existing tax structure, which allows for deductions and exemptions, and a new system that provides lower tax rates but requires forgoing most deductions and exemptions. Under the new regime, individuals earning over ₹15 lakh annually fall into the highest 30% tax bracket, whereas, under the old regime, this bracket starts at ₹10 lakh.

Proposed Changes

The government’s plan to raise the exemption limit to ₹5 lakh is intended to increase disposable income for lower-income earners. This change is part of a broader strategy to boost consumption and provide economic relief amid current financial conditions.

Unlikely Adjustments

Despite requests from industry representatives, the government is unlikely to reduce the highest individual income tax rate under the new regime from 30% to 25%. Officials believe that changes in higher income tax slabs are unnecessary at this time, as the focus is on supporting lower-income groups to stimulate consumption. Additionally, the Centre is not expected to adjust rates under the old tax regime, despite calls to raise the threshold for the highest income tax rate from ₹10 lakh to ₹20 lakh.

Government Priorities

The government is prioritizing the potential reduction of personal income tax rates over significantly increasing spending on subsidies and other schemes. This approach aims to minimize wastage and encourage more people to adopt the new tax regime, which discourages exemptions and rebates.

The proposed budget changes reflect the government's focus on providing relief to lower-income earners and boosting overall consumption. By raising the tax exemption limit to ₹5 lakh under the new regime, the government aims to enhance disposable income and economic stability. The upcoming budget will reveal further details and potential impacts of these proposed changes.