Union Budget 2024: Can the common man expect inflation-adjusted tax slabs in this Budget?

The tax slabs that are designed to assign a particular tax rate to individuals based on their earnings have not been changed in India for long. This is even as rupee value has eroded steeply over time. BankBazaar in its Budget 2024 primer has made calls on the same as the real rates move past 50 per cent. Here is a quick take on what tax slabs rejig can be initiated this time around:

But first, let’s take a glance on the current tax slabs for both the new and old tax regime:

(Credit: ClearTax)

BankBazaar report highlighted that while there was an adjustment to the 20 per cent and 30 per cent tax slabs in 2012-2013, the slab rates remain frozen since then. And now, during a highly inflationary time, taxpayers look for slab enhancements from the 2024 Union Budget. So, as is the scenario wherein the new tax regime fails to attract salaried taxpayers, there is expected immediate enhancement in the tax slabs of the old tax regime.

The old regime provides them a plethora of tax deductions including but not limited to rent, loan payments, insurance premia, tax saving investments such as provident fund, tuition fees, and medical expenses.

These deductions are sizeable and lower the tax liabilities for many who prefer it to the new regime where deductions are few. In the absence of inflation adjustment to the old slab rates frozen at 2013 levels, taxpayers continue to pay inflated tax rates while costs of living soar, added the report.

How inflation has eroded the income- An explainer

If we consider 2012-13 as the benchmark, every Rs 1 earned is now effectively worth Rs 0.55 in 2024-25, if adjusted for inflation using Cost Inflation Index values for the respective years—200 and 363, respectively. Hence Rs 10 lakh earned in 2012-13 is now effectively Rs 5.50 lakh, and Rs 20 lakh is effectively Rs 11 lakh. 

Conversely, if you earned Rs 1 in 2012-13, you’d need to earn Rs 1.81 to have the same purchasing power. Therefore, Rs 10 lakh would need to be Rs 18.15 lakh, and Rs 20 lakh would need to be Rs36.30 lakh. ₹1 in 2012-13 ₹0.55 in 2024-25 = H

According to the portal, the top slab rate is now nudging 60 per cent in ‘real’ terms.

So as taxpayers demand relief in the form of higher tax slabs and deduction, here’s what experts anticipate:

Puneet Maheshwari, Director, Upstox said, “Some rebate in the form of increased basic limits, higher income slabs, newer sections addressing investment would give a boost to both investment as well bring in some spending power to the individuals.”

AR Hemant, Associate Vice President, BankBazaar.com said that even as the new regime offers higher tax-free income, the majority of taxpayers seem to be continuing to opt for the old regime because of the deductions and exemptions available there which can meaningfully lower their tax liability. 

The expert further added that there's little to no change to the 0 per cent slab, while the 20 per cent  and 30 per cent  slabs aren't adjusted for inflation since 2012-13. The effect of this is that 'real' tax rates are seen to be in the 40-55 per cent range for high earners, despite the highest slab being only 30 per cent before cess and surcharge. 

If the government needs more taxpayers to adopt the new regime, the slabs need further enhancement. This would be most welcome, given the highly inflationary environment we're in, he noted.

ChintanGhelani, Associate Partner, N.A. Shah  is of the view that lowering rates for middle-income groups provides significant savings and help them manage increasing household expenses which in turn will manage inflation and rising costs. The tweaking is more likely considering the fact the same has remained constant for a long period of time. Higher-income earners will still contribute fairly, ensuring the government maintains necessary revenue streams.

For simplicity, comparison between existing tax slabs vis-a-vis proposed tax slabs and consequent savings is tabulated:

New Regime

Old Regime