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Budget 2023-24: 5 income new tax changes that every tax payer must know

by Shatakshi Gupta

To help the “hard-working” middle class, in a recent announced budget of upcoming financial year, Finance Minister Nirmala Sitharaman announced five significant announcements about personal income tax. She added that although the new tax system will be the default, tax payers could choose the Old one instead.

Notably, FM Sitharaman adjusted the tax slabs to significantly relieve the middle class by declaring that, under the new tax system, no tax would be assessed on annual income up to Rs 7 lakh. Under the new system, where assessee cannot claim deductions or exemptions on their investments, FM Sitharaman also permitted taxpayers a standard deduction of Rs 50,000.

The FM modified the concessional tax regime, which was first implemented in 2020-21, by increasing the tax exemption limit from Rs 50,000 to Rs 3 lakh and reducing the number of slabs to five. In total, she announced five major changes to personal income tax. Here are the 5 big changes.

Increased Tax Limits in the New Regime:

Individuals with annual income of Rs 7 lakh will no longer be required to pay any tax under the new tax regime. Previously, this limit was Rs 5 lakh. Previously, those with income up to Rs 5 lakh could benefit from up to Rs 7 lakh in benefits due to the Rs 1.5 lakh available as deduction under Section 80C and the Standard Deduction of Rs 50,000.

New Tax Slabs:

She also revealed new tax brackets for the new regime: They are listed below.

  • The tax will be zero for incomes between 0 and 3 lakh. This limit was previously Rs 2.5 lakh, but it has now been raised to Rs 3 lakh.
  • The tax rate is 5% for amounts between Rs. 3-6 lakh.
  •  The tax rate is 10% for amounts between Rs. 6-9 lakh.
  • It is 15% for amounts between Rs 9 and Rs 12 lakh.
  • The tax rate is 20% for amounts between Rs 12 and Rs 15 lakh.
  • It is 30% for incomes above Rs. 15 lakh.

This, she claims, will provide significant relief to taxpayers under the new tax regime. As a result, those with taxable income of Rs 9 lakh will now have to pay Rs 45,000 in tax, as opposed to Rs 60,000 previously. This is only 5% of the individual’s income, a 25% reduction from what he or she is currently required to pay.

Similarly, an individual with a taxable salary of Rs 15 lakh will now have to pay a tax of Rs 1.5 lakh, or 10% of the income, as opposed to Rs 1,87,500 now, a 20% reduction.

Salaried Class and Pensioners Benefits:

She also stated that the Standard Deduction of Rs 50,000 for salaried individuals and the deduction from family pension up to Rs 15,000, which were previously available only under the old regime, will now be available under the new regime as well. According to her, every salaried individual earning Rs. 15.5 lakh or more will benefit by Rs. 52,500. “It is proposed that these two deductions be allowed under the new regime as well,” she said.

Tax Surcharge Reduction:

The highest tax rate of 42.74 percent has also been reduced in this budget. According to her, the highest surcharge of 37% has been reduced to 25% in the new budget. The maximum tax rate would be reduced from 42.74 percent to 39 percent as a result. However, no changes to the surcharge have been proposed for those who wish to continue operating under the old regime. She also stated that the new tax regime would be the default tax system, but taxpayers could still use the old tax regime.

Leave Encashment Exemption:

Finally, the limit for tax exemption on leave encashment on retirement of non-government salaried employees has been raised from Rs 3 lakh to Rs 25 lakh. According to her, this was last fixed in 2002, when the highest basic pay in the government was Rs. 30,000 per month. This is in line with the increase in government salaries, she added.

What is the rationale behind the new tax regime’s implementation?

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Due to the following issues in old tax regime, this new tax regime came forward.

Problems with the previous regime: The old regime makes taxes more complicated. For example, the Old Regime permits tax exemptions and deductions for investments, insurance, and HRA expenses (house rent allowance). As a result, many committees reported that it should be simplified.

Tax evasion and avoidance:

Because taxes were higher under the previous regime, people found other ways to avoid paying them.

The highest surcharge in India is 42.74%, which is among the highest in the world. As a result, the government intends to lower this rate.

What are the benefits of the new tax system?

Increase tax compliance:

The new regime’s taxation is simple and low. Tax simplification will increase compliance and aid in the formalisation of the economy.

The benefit of moving to the new tax regime (in the form of lower tax outgo) increases for those with extremely high income levels (over 5 crore).

What are the concerns about the new tax regime?

The old income tax system provided numerous exemptions to encourage various types of savings, such as exemptions for long-term retirement savings, investment in PPF, NPS, or other 80C exemptions.

However, the new tax regime encourages consumption. This could have a negative impact on India’s savings rate in the future. However, the government believes that the new tax regime will give the public more spending flexibility because taxpayers know how to spend their money.

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