Presenting Union Budget 2023-24 in Parliament today, finance minister Nirmala Sitaraman made five major announcements with respect to personal income tax, with the objective of benefitting the hard working middle class of the country. These announcements pertaining to rebate, change in tax structure, extension of benefit of standard deduction to the new tax regime, reduction of highest surcharge rate and extension of limit of tax exemption on leave encashment on retirement of non-government salaried employees will provide substantial benefits to the working middle class.
In her first announcement regarding rebate, she proposed to increase the rebate limit to Rs7 lakh in the new tax regime, which would mean that the persons in the new tax regime, with income up to Rs7 lakh will not have to pay any tax. Currently, those with income up to Rs5 lakh do not have topay any income tax – under both old and new tax regimes.
Providing relief to middle-class individuals, she proposed a change in the tax structure in the new personal income tax regime by reducing the number of slabs to five and increasing the tax exemption limit to Rs 3 lakh. The new tax rates are:
This will provide major relief to all tax payers in the new regime. An individual with an annual income of Rs9 lakh will be required to pay only Rs45,000 as income tax. 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, Rs60,000- Similarly, an individual with an income of Rs15 lakh would be required to pay only Rs1.5 lakh or 10 per cent of his or her income, a reduction of 20 per cent from the existing liability of Rs1,87,500.
The budget provides a major relief to the salaried class and the pensioners including family pensioners, the finance minister proposed to extend the benefit of standard deduction to the new tax regime. Each salaried person with an income of Rs15.5 lakh or more will thus stand to benefit by Rs52,500. At present, standard deduction of Rs50,000 to salaried individuals and deduction from family pension up to Rs15,000 is currently allowed only under the old regime.
Sitaraman also proposed to reduce the highest surcharge rate from 37 per cent to 25 per cent in the new tax regime for income above Rs2 crore. This would result in reduction of the maximum tax rate to 39 per cent from the present 42.74 per cent, which is among the highest in the world. However, no change in surcharge is proposed for those who opt to be under the old regime in this income group.
As part of the fifth announcement, the budget proposed extension of limit of tax exemption on leave encashment to Rs25 lakh on retirement of non-government salaried employees in line with the government salaried class. At present, the maximum amount which can be exempted is Rs3 lakh.
The budget proposed to make the new income tax regime as the default tax regime. However, taxpayers will continue to have the option to avail the benefit of the old tax regime.