Union Budget 2023: Centre raises tax rebate limit, reduces slabs in key reforms | Latest News India | Times Of Ahmedabad

Union finance minister Nirmala Sitharaman gave tax payers across the spectrum – from those in the lowest tax bracket to those in the highest — the kind of sweetener they have not seen in years, although this will require them to move to the three-year old exemption-free tax regime that has so far not seen much traction.

Towards the end of her budget speech, the minister said: “Now, I come to what everyone is waiting for — personal income tax. I have five major announcements to make in this regard. These primarily benefit our hard-working middle class.”

Her tax bonanza comes with a rider. The government made the new income tax regime as the default tax regime, with individuals interested in the older regime having to opt-in.

Four of the announcements were exclusively made to make the new tax regime attractive for taxpayers by : raising tax rebate amount from ₹5 lakh to ₹7 lakh; increasing the tax exemption limit from ₹2.5 lakh to ₹3 lakh along with reducing the number of tax slabs from six to five; introducing standard deduction; and slashing surcharge rate from 37% to 25% for individuals in the highest tax bracket.

Explaining each of them, Sitharaman said: “The first one concerns rebate. Currently, those with income up to ₹5 lakh do not pay any income tax in both old and new tax regimes. I propose to increase the rebate limit to ₹7 lakh in the new tax regime. Thus, persons in the new tax regime, with income up to ₹7 lakh will not have to pay any tax.”

“The second proposal relates to middle-class individuals. I had introduced, in the year 2020, the new personal income tax regime with six income slabs starting from ₹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 ₹3 lakh,” she said.

The changes in the tax structure for the new regime do not require an individual with up to ₹3 lakh income to pay any tax. “This will provide major relief to all tax payers in the new regime. An individual with an annual income of ₹9 lakh will be required to pay only ₹45,000. This is only 5% of his or her income. It is a reduction of 25% on what he or she is required to pay now, ie, ₹60,000. . Similarly, an individual with an income of ₹15 lakh would be required to pay only ₹1.5 lakh or 10 % of his or her income, a reduction of 20% from the existing liability of ₹1,87,500,” the minister explained.

“My third proposal is for the salaried class and the pensioners including family pensioners, for whom I propose to extend the benefit of standard deduction to the new tax regime. Each salaried person with an income of ₹15.5 lakh or more will thus stand to benefit by ₹52,500,” she said. This is the first time standard deduction is being allowed in the new regime.

Her fourth announcement benefits those in the highest tax bracket, earning over ₹5 crore and taxed at an effective rate of 42.7%. “This is among the highest in the world. I propose to reduce the highest surcharge rate from 37 per cent to 25 per cent in the new tax regime. This would result in reduction of the maximum tax rate to 39%,” she said.

Her last announcement related to leave encashment benefits all taxpayers. “Lastly, the limit of ₹3 lakh for tax exemption on leave encashment on retirement of non-government salaried employees was last fixed in the year 2002, when the highest basic pay in the government was ₹30,000/- pm [per month]. In line with the increase in government salaries, I am proposing to increase this limit to ₹25 lakh,” she said.

Speaking to reporters after her Budget speech, Sitharaman said the government has made the new income tax regime “more attractive” for taxpayers underscoring the need for a direct tax regime which is simplified and easy in compliance. “The new taxation regime has now got greater traction and incentive so that people can now unhesitatingly move to the new regime from old,” she said.

According to Homi Mistry, Partner at Deloitte India, since savings under the new tax scheme were not significant, there were not many takers. “The government has now proposed a revamp of the scheme to make it more attractive…,” he said.

On reduction of surcharge, Mistry said: “This is a welcome move since moderation of individual tax rates in India would also make the country more attractive for individuals in the region and would prevent the flight of capital abroad.”