Decoding the recent changes in Tax law: A Detailed Analysis

Author: Palwi from Miranda House, Delhi University

Introduction

Taxes play a pivotal role in shaping the economic landscape of any country, and India is no exception. For the common man, taxes affect the various aspects of daily life, from the cost of goods and services to personal savings and investment opportunities. One of the most direct impacts of taxes on individuals is through income tax. The amount of tax deducted from salaries or earned income significantly influences disposable income. Affecting spending power and quality of life, indirect taxes, such as GST also impact the common man.
Taxes’ impact on the prices of essential goods and services can burden low and middle-income households, especially if they are not compensated through exemptions and reduced tax rates. Taxes play a multifaceted role in the lives of the common man in India, influencing income, expenditure, saving, and investment decisions. Effective tax policies are essential to ensure a fair distribution of the tax burden and promote economic growth and social welfare.

Current Government Policy on Budget

In this year’s budget, the government of India has taken proactive steps toward tax reform, a move that goes well for the common person. One significant change entails the restructuring of income tax slabs, aiming to provide some relief to middle and lower-income groups, thereby increasing disposable income and enhancing many individuals’ quality of life. Additionally, measures aimed at simplifying the tax and GST framework will alleviate compliance burdens for small businesses, making it easier for them to thrive and contribute to the economy. Moreover, the incentives for investment in key sectors like infrastructure and healthcare, coupled with tax breaks for saving schemes, will encourage individuals to save and invest, ultimately boosting their financial security.
As our financial year of 2025 is starting from 1 April the various new tax rules will apply as they were announced by our finance minister Nirmala Sitharaman in her budget presentation this year. Taxpayers can expect simplified tax planning and an increased basic exemption under the new tax regime.

What are the Changes?

First of all, it’s a great relief for the common man of India that finally after such a long period the slab limit has been increased from 2.5 lakhs to 3 lakhs and people having income up to 7 lakhs will get tax rebates and this amount is increased from 5 lakhs to 7 lakhs this year. The common man still has the choice to go for the old regime and new tax regime and it’s solely based on his/her choice. The new changes have been named as default tax regime and will be implemented.

The new revised tax slabs are:

If your total income is between (RS.0 – to Rs. 3 ) lakhs you have to pay 0 tax.
(RS.3 lakhs – Rs.6 lakhs) – 5%
(Rs.6 lakhs – Rs.9 lakhs) – 10%
(Rs.9 lakhs- Rs.12 lakhs)- 15%
(Rs. 12 lakhs – Rs.15 lakhs)-20%
(Above RS. 15 lakhs)- 30%
This increased exemption limit makes the tax regime more appealing. These changes are expected to stimulate consumption, spur investment, and promote economic growth.
People having income under 7 lakhs, now will be enjoying a tax rebate of Rs.25000 and previously it was Rs.12500. Section 80C of the income tax has been streamlined, with the deduction limit for investments increased from 1.5 lakhs to 2 lakhs. Additionally, a new deduction investment in infrastructure bonds has been introduced, allowing taxpayers to claim up to Rs. 50000 as a deduction from their taxable income, thereby incentivizing investment in critical sectors of the economy.
In addition to changes in deductions and tax slabs, the government has introduced surcharges on high-income earners to augment govt. revenue and inequality. Individuals with an income exceeding 1cr are now subject to a surcharge of 10%, 15% is applicable on annual income exceeding 5cr. These sub-charges are intended to ensure more progressive tax systems. Moreover, the GST rates on certain goods have been reduced from 12% to 5% making goods more affordable for consumers. Along with these changes capital gain tax on sale of equity shares has been reduced from 20% to 10% for long-term capital gains exceeding rs.1 lakhs, thereby incentivizing investment in the stock market. Similarly, the abolition of the dividend distribution tax and the reduction in the corporate tax rates for a domestic income with turnover rates of Rs.400 are anticipated to foster an enabling business environment and catalyze economic resilience.

How will switching from the old tax regime to the new tax regime or vice versa will work?

If you are not a businessman and your income is not from business then you can change from old to new and new to old every time you file your return it’s every year and if you are a person whose income type is business then you change it only once.
The tax rate of 22% will apply to the existing domestic companies and 15% for the new manufacturing companies and it has been decreased from 30%. The threshold for presumptive taxation was increased from Rs.50 lakhs to Rs. 75 lakhs.
Updates on child tax credits and other family benefits
While India does not have a child tax credit similar to some other countries, there have been changes in family-related benefits. For example, the government has increased the deduction limit for expenses related to the education of children under Section 80E. Additionally, there are enhanced deductions for expenses incurred on the health insurance premiums of family members, including senior citizens, under Section 80D.

Conclusion

The recent changes in India’s tax laws represent a substantial shift towards simplification and modernization of the tax system. The recent tax reforms exemplify a strategy endeavor by the government to craft a progressive, equitable, and business-friendly tax regime that fosters economic growth, encourages investment, and promotes social welfare. With the implementation of these reforms, India is poised to accelerate its economic growth trajectory, foster innovation, and enhance its competitiveness on the global stage.