Income Tax Expectations for Budget 2024: Inflation-Adjusted Tax Slabs and Burden

The Old Tax Regime:

• Unchanged Since 2013: The rates of income tax slabs have not changed since 2013 under the old regime of computing the income tax.
• Inflation Ignored: Nevertheless, such rates have not been indexed to inflationization, if to refer to the number of arrivals of tourists and guests. Consequently, taxes have been increased while costs of living, expenditures, and prices are considerably high.
• Purchasing Power Erosion: Expressing everything in terms of Re, the value of every Re 1 earned (with reference to 2012-13) has come down to Zero. 55 in 2024-25. For instance: An income of Rs 10 lakh in 2012-13 now has the purchasing power of only Rs 5.50 lakh. Rs 20 lakh is equivalent to Rs 11 lakh in terms of buying capacity.

The New Tax Regime:

• Threshold Raised: Under the new regime, earnings exceeding Rs 5 lakh are subjected to excess taxes. However, this threshold is set at Rs 15 lakh.
• Excess Taxes Paid:
  • On an income of Rs 10 lakh:
    • Old regime: Excess taxes paid = Rs 43,226 (monthly: Rs 3,602)
    • New regime: Excess taxes paid = Rs 67,978
  • On an income of Rs 20 lakh:
    • Old regime: Excess taxes paid = Rs 1.84 lakh
    • New regime: Excess taxes paid = Rs 67,978

Effective Tax Rates:

• Old Regime:
  • Tax liability for Rs 10 lakh income = Rs 1.17 lakh (effective tax rate: 11.7%)
  • Adjusted for inflation (2013-14): Tax should be Rs 73,774 (7.3%)
  • Real tax rate (old regime) = 21%
• New Regime:
  • Tax liability for Rs 10 lakh income = Rs 62,400 (6.24%)
  • Inflation-adjusted equivalent: Rs 73,774 (7.3%)
  • Real tax rate (new regime) = 11.3%

Conclusion:

• The new regime seems favorable for incomes up to Rs 15 lakh, with lower effective tax rates.
• However, beyond Rs 15 lakh, inflation adjustment isn’t provided.
• The old regime lacks inflation adjustment for any income above Rs 5 lakh.