No income-tax upto Rs 7 lakh in new tax regime
Mumbai: In a bid to encourage individuals to move towards the new personal income- tax regime, the Centre increased the rebate limit, revamped the personal income slabs and reduced the tax rates thereby bringing down the tax outgo for the middle class.
In the Union Budget 2023 speech, finance minister Nirmala Sitharaman announced that the new tax regime would be the default tax regime, however the benefits under the old tax regime could also be opted for by those choosing to stay under it.
The minister announced an increase in rebate limit from Rs 5 lakh to Rs 7 lakh per annum in the new tax regime. This means that anyone earning up to Rs 7 lakh a year will not have to pay any income-tax.
However, the finance minister clarified that these benefits announced won’t apply to those who choose to continue to stay under the old tax regime. A point noteworthy is that the new tax regime has not seen much traction since its launch in 2020.
Further, the basic exemption limit under the new tax regime has been increased from Rs 2.5 lakh to Rs 3 lakh. In another move to make the new tax regime attractive, standard deduction of Rs 50,000 may be claimed by salaried individuals.
Under the new tax slabs those earning upto Rs 3 lakh — pay nil tax, Rs 3lakh-6 lakh will pay tax at 5 per cent, Rs 6 lakh-9 lakh will pay 10 per cent, Rs 9-12 lakh pays 15 per cent, Rs 12-15 lakh pay 20 per cent and those above Rs 15 lakh will be taxed at 30 per cent.
According to a calculation done by KPMG (SEE TABLE), the new slabs and rates translate into nil tax for those earning upto Rs 7 lakh, a tax saving of Rs 39,000 for those earning upto Rs 15 lakh (20 per cent saving), Rs 42900 tax saved for those earning upto Rs 60 lakh (2.44 per cent).
Currently for individuals with income exceeding Rs 5 crore, the surcharge is as high as 37 per cent. This has been also reduced to 25 per cent under the new tax regime.
"I had introduced, in the year 2020, the new personal income tax regime with six income slabs starting from Rs 2.5 lakh. 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,” said Sitharaman.
“This will provide major relief to all tax payers in the new regime. An individual with an annual income of Rs 9 lakh will be required to pay only Rs 45,000/-. This is only 5 per cent of his or her income. It is a reduction of 25 per cent on what he or she is required to pay now, ie, Rs 60,000/-. Similarly, an individual with an income of Rs 15 lakh would be required to pay only Rs 1.5 lakh or 10 per cent of his or her income, a reduction of 20 per cent from the existing liability of Rs 1,87,500,” added the finance minister.
Exemption towards leave encashment has been increased to Rs 25 lakh per annum from existing Rs 3 lakh on retirement. A limit of Rs 10 crore has been proposed on the maximium deduction that can be claimed under Section 54 and Section 54 F on long term capital gains being reinvested in a residential property.
Furthermore, new IT return forms are being introduced to ensure easier filing of returns.
“While the government is foregoing effective revenue of `35,000 crore, this could have a consumption multiplier effect albeit at the margin, in the economy that’s seeing fading consumption growth said Madhavi Arora lead economist at Emkay Global Financial Services.
The relaxation of the tax exemption limit to Rs 7 lakh will increase the surplus funds for the common man which will spark activity in various sectors like investments in digital assets, consumer goods and tourism,” added Arora.