Do you have any questions about the updated new tax regime’s potential benefits for your salary income? To improve the appeal of the new tax structure to taxpayers, changes had been done by the Union Budget 2024-25. The low-to-mid-income earners (annual income up to Rs 15 lakh) and those with incomes of Rs 5 crore and beyond are projected to benefit more from the new tax system.
The tax rebate u/s 87A is the same for AY 2026-27 as given for AY 2025-26 under the Old tax regime. However, under the new tax regime, there is a full tax rebate up to a total income of Rs. 12,00,000, which is taxable under normal slab-wise tax rates, and further, the maximum surcharge rate is 25%.
Therefore, under the revised new tax regime, people with taxable income up to Rs 12 lakh will no longer be required to pay taxes. In contrast to the previous tax system, which required people to make specific tax-saving investments like PPF, EPF, or NPS to reduce their taxable income, the new tax system does not provide these alternatives.
According to the revised new tax system, salaried employees with incomes up to Rs 12.75 lakh are eligible for a standard deduction of Rs 75,000. This qualifies you under the new tax system for a tax rebate on income up to Rs 12.75 lakh.
The tax bill would have been Rs 1,11,800 (including cess) if this person had chosen the old tax regime and claimed Section 80C deductions of Rs 1.5 lakh, Section 80D deductions of Rs 25,000 for medical insurance premiums, and a standard deduction of Rs 50,000. For those making income up to Rs 12 lakh per year in salary, the newly revised tax regime is advantageous.
Revised New Income Tax Regime
What if, however, your yearly income is above 12 lakhs? If you are unable to fully utilise the various deductions, such as sections 80C, 80D, and 80E (interest paid on education loan), as well as the tax exemptions, such as HRA, LTA, and Section 24, the revised new tax regime will be advantageous for you.
For the extremely wealthy, the Budget 2023 has lowered the surcharge rate under the new tax system from 37% to 25%. The effective tax rate will therefore decrease for those with incomes above Rs 5 crore from 42.74% to 39%. However, under the previous tax system, it stays at 42.74%.
Those with an income of more than Rs 5 crore can save taxes under the revised system compared to the previous one. Please be aware that the updated new tax system would apply a 25% surcharge whenever the income level reaches more than Rs 5 crore.
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