New Tax Regime: Understanding the math behind Rs 17,500 annual tax savings

July 31, 2024 by Team Instabizfilings

The math behind the Rs 17,500 annual tax savings in the new tax regime can be broken down into two parts:

Slab Rate Reduction Effect: This amounts to Rs 10,000.
Standard Deduction: An additional Rs 25,000 deduction at 30% results in Rs 7,500 savings.

Thus, the total save tax will be Rs 10,000 + Rs 7,500 = Rs 17,500.

To illustrate this, let's consider an example. Assume Mr. A is an employee of ABC Pvt. Ltd. with a salary income of Rs 24,00,000 under the new tax regime.

With the new tax slabs and standard deduction, Mr. A's tax liability will be reduced, resulting in a tax savings of Rs 17,500.

The new savings tax regime has been made more attractive, and the government is favoring it. The new tax slabs will be effective from April 1, 2024, applying to the Assessment Year 2025-26.

The Math Behind the Tax Savings:

Slab Rate Reduction Effect:

The new tax regime reduces tax rates for particular income tax ranges. For example, the tax rate for income between Rs 5,00,000 and Rs 7,50,000 has been reduced from 20% to 15%. This reduction in tax rate will result in a tax savings of Rs 10,000.

Standard Deduction:

The standard deduction has been increased from Rs 50,000 to Rs 75,000. This increase in the standard deduction will result in an additional Income Certificate MP savings of Rs 7,500 (Rs 25,000 x 30%).

New Tax Slabs and Rates:

The new tax regime features updated tax slabs and rates, with a comparison of the old and new slabs provided below.

Income Slab	Old Tax Rate	New Tax Rate
Up to Rs 2,50,000	0%	0%
Rs 2,50,001 to Rs 5,00,000	5%	5%
Rs 5,00,001 to Rs 7,50,000	20%	15%
Rs 7,50,001 to Rs 10,00,000	20%	20%
Rs 10,00,001 to Rs 12,50,000	30%	25%
Rs 12,50,001 to Rs 15,00,000	30%	30%
Above Rs 15,00,000	30%	30%

Who Will Benefit from the New Tax Regime:

The new tax regime is advantageous for various groups, including:

Salaried Individuals: Those who receive a regular salary will benefit from the reduced Save Tax in India tax rates and increased standard deduction.
Business Owners: Entrepreneurs and business owners can also take advantage of the new tax slabs and deductions.
Individuals Not Previously Eligible for Standard Deduction: The higher standard deduction will provide additional relief to individuals who were previously ineligible or received a lower deduction.

Conclusion:

The new tax regime offers significant tax savings of Rs 17,500 for individuals. By understanding the math behind the tax savings, individuals can plan their taxes more effectively and take advantage of the new tax regime. Additionally, considering factors such as property tax can further aid in financial planning. Remember to consult a tax expert or financial advisor to optimize your tax savings.

Additional Tips and Resources:

Consult a Tax Expert or Financial Advisor: To optimize your tax savings.
Plan Your Taxes: To take advantage of the new tax regime.
Stay Informed: About the latest tax laws and regulations.
Use Online Tax Calculators: To calculate your tax liability and savings.

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