Union Budget 2024: BankBazar Proposes Changes In Income Tax Structure For Taxpayers; Find Details

BankBazaar has proposed significant changes to India's income tax slabs, suggesting an upward adjustment of the highest tax bracket from Rs 10 lakh to Rs 18 lakh in the old regime to account for inflation. This proposal, if accepted, could bring substantial relief to middle-class taxpayers, marking a departure from the tax structure that has remained unchanged since 2013.

Current Tax Structure

As it stands, the income tax structure under the old regime is divided into three main brackets. Income from Rs 2.5 lakh to Rs 5 lakh is taxed at 5%, income from Rs 5 lakh to Rs 10 lakh is taxed at 20%, and any income exceeding Rs 10 lakh is taxed at 30%. This structure, unchanged since 2013, has not kept pace with inflation, leading to increased tax burdens on middle-class taxpayers whose real income has eroded over the years.

BankBazaar's proposal aims to update these slabs, significantly alleviating the tax burden on middle-class taxpayers who have been grappling with rising living costs without a corresponding increase in tax relief.

The BankBazaar Primer for Budget 2024 emphasizes the need to update the 20% and 30% tax slabs to reflect inflation since 2012-13. The Cost Inflation Index (CII) has risen from 200 in 2012-13 to 363 in 2024-25, indicating an 81.5% increase. Persistent inflation over recent years has driven up the cost of living, making it imperative to adjust the tax slabs accordingly.

Proposed Income Tax Slabs

BankBazaar's proposal suggests adjustments to the old tax regime to better align with current economic realities. Specifically, it recommends that the 30% tax slab should apply to incomes above Rs 18 lakh, an increase from the current Rs 10 lakh threshold. Additionally, it advocates for the 20% tax slab to be adjusted to reflect inflation, though specific figures for this adjustment were not detailed in the proposal. These changes aim to provide much-needed relief to taxpayers by updating the tax structure to account for inflation and rising living costs.

Enhancements to Tax Deductions

In addition to adjusting the tax slabs, BankBazaar has highlighted the need to enhance certain deductions to further ease the tax burden:

Section 80C: The current limit of Rs 1.5 lakh, set in 2014, should be increased to at least Rs 2 lakh to account for inflation and rising costs.
Section 80D: Given the increased insurance premiums post-COVID, the deduction limits should be raised to Rs 50,000 for general taxpayers and Rs 1 lakh for senior citizens.
Home Loan Deductions: Interest and principal repayments on home loans should have separate sections, with limits up to Rs 5 lakh.
Rebates Under Section 87A: The income limit for rebates should be extended to Rs 6.3 lakh, reflecting changes since the last update in 2019.

Addressing Frozen Tax Slabs

The new tax regime, introduced in recent years, exempts incomes up to Rs 7 lakh from tax. However, many taxpayers with incomes above this threshold prefer the old regime due to its numerous deductions, despite the tax slabs being frozen since 2013-14. This has resulted in taxpayers paying inflated tax rates amidst soaring living costs.

The Cost of Inaction

Without adjusting the tax slabs for inflation, taxpayers continue to pay excess taxes. For example:

An individual with an income of Rs 10 lakh under the old regime pays an excess tax of Rs 43,226 annually, or Rs 3,602 per month.
For an income of Rs 20 lakh, the excess taxes amount to Rs 1.84 lakh in the old regime and Rs 67,978 in the new regime.
These figures illustrate the financial burden on taxpayers, reinforcing the need for proposed changes.

Broader Implications

BankBazaar's proposal, if implemented, could have far-reaching implications for the Indian economy. By reducing the tax burden on the middle class, it would increase disposable income, potentially boosting consumer spending and stimulating economic growth. Additionally, higher deduction limits could encourage savings and investments, further benefiting the economy.

BankBazaar's proposal to adjust the income tax slabs and enhance deductions is a timely and necessary response to the economic challenges faced by middle-class taxpayers. By aligning the tax structure with current inflation rates and cost of living, this proposal could provide relief and foster economic growth.