Budget 2023: No income tax up to Rs 7 lakh under new tax regime

Nirmala Sitharaman said that in 2020, the new personal income tax regime with six income slabs was introduced starting from Rs 2.5 lakh.
Image used for representational purpose only. (File Photo)
Image used for representational purpose only. (File Photo)

BENGALURU: Providing the much-awaited relief to taxpayers, Finance Minister Nirmala Sitharaman proposed to increase the income- tax rebate limit to Rs 7 lakh from Rs 5 lakh under the new tax regime and also proposed to revise the tax structure.

“Currently, those with income up to Rs 5 lakh do not pay any income tax in both old and new tax regimes. I propose to increase the rebate limit to Rs 7 lakh in the new tax regime. Thus, persons in the new tax regime, with income up to Rs 7 lakh will not have to pay any tax,” said the Finance Minister while presenting the Budget.

In the revised tax slabs under new tax regime, no income tax will be levied till Rs 3 lakh, a 5 per cent tax will be levied on total income between Rs 3 lakh and Rs 6 lakh, 10 per cent will be levied on Rs 6 lakh to Rs 9 lakh, 15 per cent on Rs 9 lakh to Rs 12 lakh, 20 per cent on Rs 12 lakh to Rs 15 lakh and 30  per cent on Rs 15 lakh and above.

The new income-tax regime will now become the default option, but taxpayers will have the option to go for the earlier regime. The FM had introduced, in 2020, the new personal income tax regime with six slabs starting from Rs 2.5 lakh.

She also proposed to reduce the highest surcharge rate from 37 per cent to 25 per cent in the new tax regime which would result in reduction of the maximum tax rate to 39 per cent. According to the new structure, an individual with an annual income of Rs 9 lakh will be required to pay only Rs 45,000 which 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, i.e, 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,” said the Finance Minister explaining the benefit of revised tax structure.

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The FM also allowed a Rs 50,000 standard deduction to taxpayers under the new regime. She said that as a result of these proposals, revenue of about Rs 38,000 crore- Rs 37,000 crore in direct taxes and  Rs 1,000 crore in indirect taxes — will be forgone while revenue of about Rs 3,000 crore will be additionally mobilized. Thus, the total revenue forgone is about Rs 35,000 crore annually.

Sandeep Agrawal Director & Co-founder Teamlease Regtech said this (new tax regime) will result in around 25% reduction in tax liability for individuals with income up to Rs 9 lakh and around 20% reduction in tax liability for individuals with income up to Rs 15 lakh.

Professor Anil Sood, who did the math for The New Indian Express' shadow budget, said all the changes in Income Tax rates are for encouraging the New Tax Regime.

Salary earners have a greater relief in the form of increased standard deduction limit and leave encashment, he added.

Tax slabs revised
In the revised tax slabs under new tax regime, no income tax will be levied till Rs 3 lakh, a 5 per cent tax will be levied on total income between Rs 3 lakh and Rs 6 lakh, 10 per cent will be levied on Rs 6 lakh to Rs 9 lakh, 15 per cent on Rs 9 lakh to Rs 12 lakh, 20 per cent on Rs 12 lakh to Rs 15 lakh and 30 per cent on Rs 5 lakh and above

Graphic: The old and new schemes when the new regime was announced in 2020:

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