GD Topic - Union Budget 2024: Are the New Income Tax Slabs a Win for the Middle Class?

Candidates taking MBA entrance exams for admissions in top B-schools must prepare well for the Group Discussion Round. This round plays a major role in the MBA admission process. Read the below article to find details on new income tax slabs under Union Budget 2024 and their impact on middle-class people.

Management of Business Studies is one of the most pursued postgraduate programmes. The MBA admission process includes entrance exams like CAT, XAT, SNAP, NMAT, and MAH MBA CET followed by a Group Discussion Round. Candidates aiming for top B-schools like IIM, XLRI Jamshedpur, SBIM Pune, etc., must prepare well for the GD/PI round.

In the GD round, a group of candidates is formed, and they are given a topic related to current affairs, abstract concepts, political issues, etc. After gathering their thoughts for two minutes, candidates must engage in a healthy discussion for 20-25 minutes. The candidates are scored based on their communication and leadership skills, English proficiency, subject knowledge, time management, and critical thinking. Based on the scores achieved in the Group Discussion Round, candidates can move on to the next stage of the MBA admission process.

To excel in the GD round, one must work on their speaking and reasoning skills, maintain eye contact with the group, avoid interrupting others while they are speaking, use relevant points to express their opinions, listen attentively, speak confidently, and practice proper body language. Group Discussion rounds for MBA admissions are tentatively scheduled to begin in the third week of January 2025.

Union Budget 2024: Changes in Income Tax Slab under New Tax Regime

The Union Finance Minister of India, Nirmala Sitharanman, presented the Union Budget for FY 2024-25 on 23^rd July 2024. This was her seventh consecutive budget presentation. As the first budget formulated after the general elections in 2024, it holds immense importance. It will lay the outline for the government's workings for the next five years and show a path to the government for the next four consecutive budgets, making this budget quite important for us to understand.

Our Hon’ble Prime Minister Narendra Modi has praised this budget, stating that it caters to all sections of society and will help India achieve the vision of a “Viksit Bharat” by 2047, marking 100 years of independence. However, former Finance Minister P. Chidambaram criticized the budget stating, “This budget fails to assure the people of India how inflation would be controlled in this country and this budget gives too little room for improving the condition of unemployment.”

Many have praised various aspects of this budget, while others have criticized it, highlighting missed opportunities and insufficient attention to certain sectors. One aspect of this budget that has faced significant criticism is the Revised Income Tax Slabs under the New Tax Regime. Many experts say that the new income tax slabs are not in favor of middle-class people. However, according to Finance Minister Nirmala Sitharaman, “Over two-thirds of taxpayers have already adopted the new regime.”

To understand whether or not this statement is valid, let’s first understand the meaning of income tax and income tax slabs.

What is Income Tax?

Income Tax is a direct tax levied on an individual or an entity’s income during a financial year. Like all other direct taxes, it is directly paid to the government. The amount of tax to be paid depends on the income tax slab applicable to the taxpayer’s income.

An Income Tax Slab is a system where different tax rates are applied to different income brackets. This system supports a progressive taxation model, ensuring that as taxable income increases, the tax rate also rises, requiring higher earners to contribute a larger share of their income in taxes.

Each slab defines a specific income range and the corresponding tax rate, enabling individuals to determine their tax liability based on their total annual income. This approach ensures fairness in the tax system while supporting the government’s revenue needs.

Income Tax Slabs: Old Regime vs. New Regime (Effective from FY 2024-25)

Key Changes under the New Regime (FY 2024-25)

The Finance Minister of India, Nirmala Sitharaman announced the following changes in the new tax regime under the Union Budget 2024.

Below are the changes announced under the New Tax Regime for FY 2024-2025:

Increased Standard Deduction: From ₹50,000 to ₹75,000
Higher Tax Rebate: Applicable for incomes up to ₹7,00,000.
Revised Income Tax Slab: Lower tax rates for certain income brackets.
Family Pension Deduction: Increased from ₹15,000 to ₹25,000.
Enhanced NPS Deduction: Employer contribution to NPS increased from 10% to 14% in the case of private companies, PSUs, and private banks, bringing parity with government employees.

Is the New Income Tax Slab Beneficial for the Middle Class?

To determine whether the revised income tax slab is beneficial for the middle class, we have to evaluate the impact of the tax rates across income levels. To do so, let’s take an example and determine the net taxable income and tax amount to be paid under the Old Tax Regime and New Tax Regime.

Tax under the Old Tax Regime

Gross Salary Range	Gross Salary (₹)	Standard Deduction	Extra Deductions*	Net Taxable Income	Tax to be Paid
₹ 0 - 2.5 Lakhs	₹2,40,000	₹50,000	₹0	₹1,90,000	₹0
₹ 2.5 - 3 Lakhs	₹2,80,000	₹50,000	₹0	₹2,30,000	₹0
₹ 3 - 5 Lakhs	₹4,70,000	₹50,000	₹0	₹4,20,000	₹0
₹ 5 - 7 Lakhs	₹5,60,000	₹50,000	₹50,000	₹4,60,000	₹0
₹ 7 - 10 Lakhs	₹8,80,000	₹50,000	₹2,50,000	₹5,80,000	₹28,500
₹ 10 - 12 Lakhs	₹11,50,000	₹50,000	₹3,00,000	₹8,00,000	₹72,500
₹ 12 - 15 Lakhs	₹14,00,000	₹50,000	₹3,50,000	₹10,00,000	₹1,12,500
> ₹ 15 Lakhs	₹17,00,000	₹50,000	₹4,00,000	₹12,50,000	₹1,87,500

Notes:

The tax has been calculated without Surcharge and Cess.
*Extra Deductions include HRA Exemption, Loss on House Property, Interest on Home Loans, Deductions under Section 80C, Deductions under Section 80D, and NPS contribution from employer (up to 10% of Basic + DA)

Tax under the New Tax Regime

Gross Salary Range	Gross Salary (₹)	Standard Deduction	NPS Deductions *	Net Taxable Income	Tax to be Paid
₹ 0 - 2.5 Lakhs	₹2,40,000	₹75,000	-	₹1,65,000	₹0
₹ 2.5 - 3 Lakhs	₹2,80,000	₹75,000	-	₹2,05,000	₹0
₹ 3 - 5 Lakhs	₹4,70,000	₹75,000	-	₹3,95,000	₹0
₹ 5 - 7 Lakhs	₹5,60,000	₹75,000	-	₹4,85,000	₹0
₹ 7 - 10 Lakhs	₹8,80,000	₹75,000	-	₹8,05,000	₹30,500
₹ 10 - 12 Lakhs	₹11,50,000	₹75,000	-	₹10,75,000	₹61,250
₹ 12 - 15 Lakhs	₹14,00,000	₹75,000	-	₹13,25,000	₹1,05,000
> ₹ 15 Lakhs	₹17,00,000	₹75,000	-	₹16,25,000	₹1,77,500

Note: *NPS Contribution is not mandatory. Therefore, in this example, we will take NPS as zero.

With the above example, we can see that individuals earning up to ₹7,00,000 pay no tax, under the old tax regime as well as the new tax regime, due to the higher standard deduction and tax rebate. This provides relief to individuals selecting the new tax regime, as they do not have to invest to save tax, giving them more disposable income. It will also provide them additional financial flexibility toward savings and essential expenditures.

On the other hand, individuals earning more than ₹7,00,000 will have to pay tax under old and new tax regimes. However, individuals earning between ₹7,00,000 and ₹10,00,000 might find the old tax regime beneficial, while individuals earning more than ₹10,00,000 might prefer the new tax regime due to the lower tax amount. The old regime is better suited for those who either claim higher HRA or have overall deductions exceeding the benefits of the new regime.

Conclusion

With the above discussion, we can conclude that, though the changes made in the New Tax Regime under Union Budget 2024 offer a simplified taxation structure, increased standard deductions, and higher tax rebates, its impact on middle-class taxpayers cannot be stated as completely beneficial. This is because the taxable income and amount of tax to be paid by middle-class people varies based on their financial profiles, income levels, and the ability to claim deductions. While individuals with minimal deductions and higher incomes may find the new regime more beneficial, those heavily reliant on exemptions under the old regime might prefer to continue with it.