Budget 2024 income tax expectations: Are you paying excess tax? You may be paying Rs 43,226 extra on Rs 10 lakh income - find out why

Income Tax Expectations Budget 2024: Budget 2024 should look to change tax slabs under the old tax regime and also consider changes to the new tax regime to inflation-adjust the tax burden borne by salaried taxpayers, says Bankbazaar.com in its Pre-Budget 2024 primer.

The old tax regime income tax slab rates, which have remained unchanged since 2013, have not been adjusted for inflation, resulting in taxpayers paying higher tax rates despite the rising cost of living, says Bankbazaar.

Considering 2012-13 as the reference point, the value of every Rs 1 earned has effectively decreased to Rs 0.55 in 2024-25. Consequently, an income of Rs 10 lakh in 2012-13 now has the purchasing power of only Rs 5.50 lakh, while Rs 20 lakh is now equivalent to Rs 11 lakh in terms of buying capacity, it notes.

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To put it simply, an income of Rs 10 lakh in 2012-13 would need to be Rs 18.15 lakh today, and an income of Rs 20 lakh would need to be Rs 36.30 lakh to have the same buying power.

Income Tax Expectations Budget 2024: Are you paying excess tax?

Bankbazaar’s analysis says that when inflation-adjustment is not taken into account for income tax brackets, and considering the 2012-13 inflation figures as the starting point, it leads to the inference that taxpayers are shelling out more than what they should.

Under the old tax regime, earnings exceeding Rs 5 lakh are being subjected to excess taxes. In the new tax regime, this threshold is set at Rs 15 lakh, it says.

For instance, on an income of Rs 10 lakh, excess taxes paid in the old regime are Rs 43,226, or Rs 3602 per month. At Rs 20 lakh, excess taxes paid are Rs 1.84 lakh in the old regime and Rs 67,978 in the new regime.

Let's examine the tax liability for a taxable income of Rs 10 lakh.

• The old regime results in a tax liability of Rs 1.17 lakh, which translates to an effective tax rate of 11.7%. In contrast, under the new tax regime, the tax liability stands at Rs 62,400, or 6.24%, says Bankbazaar.
• Adjusting the 2013-14 tax (Rs 1.33 lakh) for inflation, the tax should have been reduced to Rs 73,774, or 7.3%.
• Taking inflation into account, Rs 10 lakh in 2013 is equivalent to Rs 5.5 lakh in 2024. Consequently, the 'real' tax rate under the old regime is 21%, while it is 11.3% under the new regime.

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The new regime appears to be more favorable in terms of inflation adjustment. However, upon closer examination, it becomes evident that the positive impact of the new tax regime is limited to incomes up to Rs 15 lakh. Within this income range, the effective tax rates seem to be lower compared to the inflation-adjusted values from 2013-14.

For incomes exceeding Rs 15 lakh, the new regime does not provide any inflation adjustment. In comparison, the old regime fails to offer inflation adjustment for any income above Rs 5 lakh, it says.

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