Budget 2024: BankBazaar Suggests Rs 18 Lakh As Ideal Threshold for 30% Income Tax

BankBazaar has suggested a new income tax slab that could lead to a notable shift. According to their proposal, the 30% slab in the existing old regime would rise to ₹18 lakh if adjusted for inflation over this period. This marks a significant jump from the current tax structure, where the higher income slab has remained at Rs 10 lakh since 2013.

Currently, the tax structure stands as follows: Income ranging from Rs 2.5 lakh to Rs 5 lakh is taxed at 5%, while income between Rs 5 lakh and Rs 10 lakh incurs a 20% tax rate. Any income exceeding Rs 10 lakh is taxed at 30%. BankBazaar’s proposal aims to offer substantial tax relief to many middle-class taxpayers.

According to the BankBazaar Primer for Budget 24, it is highlighted that the 20% and 30% tax slabs in the old regime need updating compared to benchmarks set in 2012-13. The Cost Inflation Index values for these years are 200 and 363 respectively, reflecting an 81.5% increase. Persistent inflation in recent years underscores the urgent need for adjusting these outdated slab rates without delay.

Proposed Income Tax Slabs

Under the old regime, taxpayers benefited from various deductions such as rent, loan payments, insurance premiums, and investments like provident funds, tuition fees, and medical expenses.

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These deductions significantly reduce tax liabilities for many individuals, making the old regime preferable over the new one, which provides fewer deduction opportunities. However, due to the lack of inflation adjustments in the slab rates frozen since 2013, taxpayers are burdened with inflated tax rates despite rising living costs.

Improvements are needed in specific areas:

• The current 80C limit, set at Rs 1.5 lakh since 2014, should be increased to at least Rs 2 lakh.
• Given the increased costs of insurance premiums post-COVID, 80D deductions should be raised to Rs 50,000 for general taxpayers and Rs 100,000 for senior citizens.
• Home loan interest and principal payments should be separately categorized with a maximum deduction limit of Rs 5 lakh.
• Rebates under section 87A should be expanded to cover incomes up to Rs 6.3 lakh, compared to the last update in 2019.

Challenges Posed by Static Tax Brackets

Under the new tax regime, individuals with a taxable income of Rs 7 lakh or less pay no income tax. However, those earning above this threshold often favor the old regime, where tax slabs have remained unchanged since 2013-14. Despite the lack of inflation adjustments for over a decade, many taxpayers benefit from lower tax liabilities under the old regime due to various deductions. However, during periods of inflation, taxpayers face financial strain and require relief through higher tax slabs and increased deductions.