On February 1st, 2023, India launched a new budget plan. The fifth financial budget plan, 2023–2024, from Finance Minister Nirmala Sitharaman, will balance populism with conservatism while providing benefits for India’s working class and lower working class. Changes to the structure of personal expenses are likely to be one of the most important statements.
In her Budget Speech to Parliament on February 1, 2023, Union Minister of Finance Nirmala Sitharaman made many statements concerning personal income tax, with a focus mostly on the new tax system. She announced five significant modifications to the personal income tax in total.
- Increased Tax Limit Under New Regime: Now, under the new tax system, people with taxable incomes up to Rs 7 lakh are exempt from paying any taxes. Previously, there was a Rs. 5 lakh cap. Before the implementation of the new tax law, individuals with income up to Rs 5 lakh were also eligible to get benefits of up to Rs 7 lakh thanks to the Rs 1.5 lakh deduction allowed under Section 80C and the Rs 50,000 Standard Deduction.
- Tax Slabs: She also disclosed brand-new tax slabs for the new system:
They are listed below:
For incomes between 0 and 3 lahks, there will be no tax. This ceiling, which was previously set at Rs 2.5 lakh, has now been raised to Rs 3 lakh.
The tax rate is 5% for amounts up to Rs. 3-6 lakh and 10% for amounts between Rs. 6 lahks and Rs. 9 lakh. It is 15% for amounts between Rs 9 and 12, and 20% for amounts between Rs 12 and 15, respectively. 30% applies on incomes over Rs. 15 lahks.
According to her, this would significantly relieve taxpayers under the new tax system. As a result, persons with taxable income of Rs 9 lakh will now pay Rs 45,000 in taxes as opposed to Rs 60,000 previously. This is merely 5% of the person’s salary, which is a 25% decrease over what they are currently expected to pay.
Similarly, a person earning a taxable salary of Rs 15 lakh will now only be required to pay a tax of Rs 1.5 lakh, or 10% of their income, as opposed to the current rate of Rs 1,87,500, a 20% reduction.
- Benefits for the Salaried Class and Pensioners: She emphasized that the Standard Deduction of Rs 50,000 for salaried individuals and the deduction from family pension up to Rs 15,000—both currently permitted exclusively under the previous tax system—will now be available under the new tax system as well.
Therefore, she claimed, every salaried person making at least Rs. 15.5 lakh will stand to gain by 52,500.
According to the new system, it is also recommended to permit these two deductions, she stated.
- Tax Surcharge Reduction: This budget also lowers the top tax rate, which was 42.74 percent. According to her, the new budget has lowered the maximum surcharge from 37% to 25%. As a result, the top tax rate would drop from 42.74 percent to 39 percent.
The price hasn’t been changed, though, for those who prefer to go with the previous system.
She also stated that although the new tax system will be the default, taxpayers may still opt to continue using the previous method.
- Tax-Exemption on Leave Encashment: Last but not least, the non-government salaried employee limit of Rs. 3 lahks for tax exemption on leave encashment on retirement has been extended to Rs. 25 lahks. The last time this was fixed was in 2002, when the maximum monthly basic wage in the government was Rs. 30,000, according to her. She continued by saying that this was done in accord with the rise in government salaries.
The increased slab limits in this budget bode well for middle-class taxpayers, according to Sudhakar Sethuraman, a partner at Deloitte India. It would be greatly welcomed if the leave encashment exemption was reviewed in light of typical pay levels. One needs to be ready for the future priorities of the new tax system.
Sethuraman continued, “Another point on better targeting of tax discounts and exemptions has been setting the cap for capital gain exemption in the case of residential homes at Rs. 10 crores.”
