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Budget FY 2024-25 – Tax on Salary

The Union Budget for FY 2024-25 was tabled in the Parliament by the Finance Minister of India on 23-July-2024. Here are the key proposals related to computation of tax on salary which payroll managers need to consider for FY 2024-25.

Changes to tax slabs under the new regime

Section 115BAC (New Regime) allows employees to opt for lower tax rates (as against the rates under the old regime) subject to their foregoing certain exemptions / losses / deductions. For FY 2024-25, the slab rates under the new regime have been modified as follows.

For FY 2024-25, the new regime continues to be the default regime for tax calculation. If an employee does not specify their preference with regard to the regime for tax calculation, the employer shall use the New Regime for the purpose of tax calculation.

Standard Deduction increases for the New Regime

The Standard Deduction for the New Regime has been increased to Rs 75,000  for FY 2024-25 from Rs 50,000 for FY 2023-24.

A question on the rebate under Section 87A

There is no reference to the rebate under Section 87A in the budget document. This means that the rebate remains unchanged for both the regimes.

For the New Regime, the rebate under Section 87A for FY 2023-24 is as follows:

Up to a total income of Rs 700,000, the rebate shall be the actual tax amount computed or Rs 25,000, whichever is less. In the slab rates for FY 2023-24, the tax amount for the total income of Rs 700,000 is Rs 25,000.

However, for FY 2024-25 slab rates, if one were to go by the income limit of Rs 700,000, the rebate under Section 87A shall be restricted to Rs 20,000. Alternatively, if one were to go by the maximum tax amount (under the rebate) of Rs 25,000, the income limit shall increase from Rs 700,000 to Rs 750,000.

We request the Income Tax Department to clarify whether the 87A rebate for FY 2024-25 is as per the income limit (Rs 700,000) or the maximum tax rebate (Rs 25,000).

This question is important not only for the calculation of the rebate under Section 87A but also for the marginal relief calculation under the New Regime. 

Health and Education Cess and surcharge rates stay unchanged

The “Health and Education Cess” stays at 4% on income tax and surcharge, if applicable. Also, the surcharge rates for different income slabs stay the same.

Deduction under Section 80CCD(2)

Deduction under Section 80CCD(2) – employer contribution to pension scheme – is available under both the Old and the New Regimes. For FY 2023-24, this contribution was restricted to 10% of salary for it to be non-taxable for non-government employees. For FY 2024-25, the employer contribution up to 14% of the salary shall be non-taxable, for non-government employees.

Slab rates for the Old Regime remain the same

The tax rates for salaried employees below 60 years of age for FY 2024-25 shall be the same as those for FY 2023-24.

The tax rates (for FY 2024-25) for salaried employees below 60 years of age shall be as follows.

The tax rates (for FY 2024-2025) for salaried employees aged 60 years and above but below 80 years shall be as follows.

Rebate under Section 87A, surcharge and education cess remain the same under the old regime.