New Delhi : Finance minister Nirmala Sitharaman on Wednesday announced no tax for those with annual income of up to Rs 7 lakh under the new tax regime but made no changes for those who continue in the old regime that provides for tax exemptions and deductions on investments and expenses such as HRA.
In what is being seen as push for salaried class taxpayer to switch to new tax regime where no exemptions on investments is provided, the finance minister in her budget for 2023-24 allowed a standard deduction of Rs 50,000 under the new regime.
The old tax regime provides for a similar deduction and no tax on income up to Rs 5 lakh.
She also tweaked the concessional tax regime, which was originally introduced in 2020-21, by hiking the tax exemption limit by Rs 50,000 to Rs 3 lakh and reducing the number of slabs to five.
In the Budget for 2023-24, Sitharaman said currently individuals with total income of up to Rs 5 lakh do not pay any tax due to rebate under both the old and new regimes.
Also, the basic exemption limit has been raised to Rs 3 lakh from Rs 2.5 lakh. A Rs 2.5 lakh basic exemption limit is prescribed in old tax regime.
The move will lead to a saving of Rs 33,800 for those earning up to Rs 7 lakh annually and opting for new tax regime.
Those with income up to Rs 10 lakh would save Rs 23,400 and Rs 49,400 saving would accrue to those earning up to Rs 15 lakh.
For high salary people, Sitharaman also reduced surcharge from 37 per cent to 25 per cent for high net worth individuals with income above Rs 2 crore.
This would translate into a saving of around Rs 20 lakh for those having a salary income of about Rs 5.5 crore.
In her Budget speech, Sitharaman said currently individuals with total income of up to Rs 5 lakh do not pay any tax due to rebate.
“It is proposed to increase the rebate for the resident individual under the new regime so that they do not pay tax if their total income is up to Rs 7 lakh,” Sitharaman said.
She further said under the new personal income tax regime, the number of slabs would be reduced to five.
“I propose to change the tax structure in this regime by reducing the number of slabs to five and increasing the tax exemption limit to Rs 3 lakh,” Sitharaman said.
The new slabs under new tax regime are:
Up to Rs 3 lakhs: Nil
From Rs 3-6 lakhs: 5%
From Rs 6-9 lakhs: 10%
From Rs 9-12 lakhs: 15%
From Rs 12-15 lakhs: 20%
Over Rs 15 lakhs: 30%
“I propose to extend the benefit of standard deduction to the new tax regime.
“Each salaried person with an income of Rs 15.5 lakh or more will thus stand to benefit by Rs 52,500,” Sitharaman said.
The government in Budget 2020-21 brought in an optional income tax regime, under which individuals and Hindu Undivided Families (HUFs) were to be taxed at lower rates if they did not avail specified exemptions and deductions, like house rent allowance (HRA), interest on home loan, investments made under Section 80C, 80D and 80CCD.
Under this, total income up to Rs 2.5 lakh was tax exempt.
Currently, a 5 per cent tax is levied on total income between Rs 2.5 lakh and Rs 5 lakh, 10 per cent on Rs 5 lakh to Rs 7.5 lakh, 15 per cent on Rs 7.5 lakh to Rs 10 lakh, 20 per cent on Rs 10 lakh to Rs 12.5 lakh, 25 per cent on Rs 12.5 lakh to Rs 15 lakh, and 30 per cent on above Rs 15 lakh.
The scheme, however, has not gained traction as in several cases it resulted in higher tax burden.
With effect from April 1, these slabs will be modified as per the Budget announcement.