Union Finance Minister Nirmala Sitharaman made the announcement of a change in income tax slabs and a rebate of up to Rs 7 lakh under the new income tax regime on Wednesday during the Union Budget speech in the House.
According to Alok Agrawal, Partner, Deloitte India, the new rules will encourage taxpayers at both ends of the spectrum because there will not be any liability to annual income of 7 lacs on one hand and surcharge on annual income above 5 crores has been reduced from 37 to 25% at the high-income end.
The five changes to the income tax rules that were made public by FM Nirmala Sitharaman in the Budget for 2023 are as follows:
- The tax rebate limit was raised to Rs 7 lakh from 5 lakh: In simple terms, Abhishek A. Rastogi, founder of Rastogi Chambers, stated that the increase in this limit to 7 lakh means that individuals whose income is less than Rs 7 lakh do not need to invest anything in order to claim exemptions and that their entire income will be tax-free regardless of the amount invested. This will result in giving the middle-class income group more consumption power because they will be able to spend the entire amount of income without worrying too much about investment schemes to take advantage of exemptions.”
- Changes to the income tax brackets: In the new regime, the finance minister proposes changing the tax structure by lowering the number of tax exemptions to 3 lakh and reducing the number of tax slabs to five. The new tax rates are 0-3 lakh-nil, 3-6 lakh-5 percent, 6-9 lakh-10 percent, 9-12 lakh-15 percent, 12-15 lakh-20 percent, and above Rs 15 lakh-30 percent. The six income categories will be reduced to five by the new system. Assessors of taxes will still be able to select from the previous system.
- Pensioners and employees: According to Amit Gupta, MD, SAG Infotech, the new tax system’s standard deduction for taxable income exceeding Rs 15.5 lakhs is Rs 52,500. The finance minister also announced that the standard deduction would be extended to pensioners under the new tax system.
- The combined maximum tax and surcharge will be 39%: India has the highest tax rate, which is 42.74 percent. This ranks among the world’s highest. In the new tax system, I propose lowering the highest surcharge rate from 37% to 25%. This would result in lowering the maximum tax rate to 39%, said Nirmala Sitharaman.
- Use of vacation time: Last but not least, the highest basic pay in the government was 30,000 pm in 2002, when the limit for tax exemption on leave encashment on retirement of non-government salaried employees was set at Rs 3 lakh. The finance minister proposes increasing this limit to Rs 25 lakh in line with the rise in government salaries.