In a big relief for the country's growing middle class, the government has rejigged the income-tax slabs in the new tax regime and said there will be no tax on income of upto ₹7 lakh a year – up from ₹5 lakh.
In her Budget 2023 speech, Union Finance Minister Nirmala Sitharaman said the government proposes to make the new tax structure as default tax option.
However, no changes have been made in the old tax regime. The income tax slabs in new tax regime has been changed.
FM Sitharaman gave an example: "An individual with an annual income of ₹9 lakh will be required to pay only ₹45,000. This was ₹60,000 under the calculations applicable up to this financial year. An individual with an income of ₹15 lakh will have to pay ₹1.5 lakh tax, down from ₹1.87 lakh under new tax structure."
The government has also proposed to reduce highest surcharge rate from 37 per cent to 25 per cent in new tax regime, the FM said.
What's new in the new income tax regime
- Basic exemption limit is hiked to ₹3 lakh from ₹2.5 currently under the new income tax regime in Budget 2023-24.
- Rebate under Section 87A has been hiked from ₹5 lakh to ₹7 lakh
- There will be five income tax slabs now, on taxable income calculated after all exemptions:
a. Taxable income of ₹0-3 lakh (after all exemptions) will be nil;
b. ₹3 lakh to 6 lakh will be taxed at 5 per cent;
c. Income above ₹6 lakh and up to ₹9 lakh, will be taxed at 10 per cent;
d. Above ₹12 lakh, up to 15 lakh, will attract a 20-per-cent tax; and
e. Income above ₹15 lakh a year will be taxed at 30 per cent.
The FM has also proposed to hike tax exemption on leave encashment on retirement of non-government salaried employees to ₹25 lakh from ₹3 lakh.
The government also proposes to extend ₹50,000 standard deduction to salary earners under new tax regime, the FM said.
Parliamentary Affairs Minister Pralhad Joshi had earlier said, "This will be the best budget. This will be a pro-poor, pro-middle-class budget."
Meanwhile, the Modi government has cut down the fiscal deficit target to 5.9% of GDP in the next financial year, compared to 6.4% for the current fiscal year.
In terms of taxation and savings related announcements from the budget there were multiple areas to look out. On expected lines, reforms to strengthen adoption of a new tax regime for individual taxpayers introduced in 2020 were made. This increases benefits focusing on the middle income segment by reducing tax burden by 20-25% for 9-15L income slabs along with increasing the basic income limit to 3 lakhs and taking the rebate upto 7 lakhs. Further, standard deduction introduction of 52,500/- is another add on. Overall, this should help a higher shift towards the new regime," said Vivek Goel, Joint Managing Director at Tailwind Financial Services.
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