New Delhi: The central government Wednesday made a much-awaited mega announcement on increasing the income level up to which no income tax is payable: ₹ 7 lakh a year from the 2023-24 financial year. It was Rs 5 lakh so far. But there is a caveat: This change is only for those who choose the New Tax Regime.
Introduced in 2020, this New regime has none of the usual exemptions on insurance premium, mutual funds and other such investments. It did not gain traction as it resulted in higher tax burden in many cases. Those choosing the Old regime continue to get exemptions on investments, after which their final taxable income is calculated.
A five-slab structure will apply now under the New regime, also raising the no-tax slab by ₹ 50,000.
Income between ₹ 0-3 lakh will have no tax; it was zero to ₹ 2.5 lakh earlier.
From then on:
- Income part from ₹ 3 lakh and 6 lakh will be taxed at 5 per cent;
- Rs 6 lakh to ₹ 9 lakh, at 10 per cent;
- Rs 9 lakh to 12 lakh, 15 per cent;
- Rs 12 lakh to 15 lakh will attract a 20-per-cent tax; and
- The part of income going above ₹ 15 lakh will be taxed at 30 per cent.
The minister also brought down the highest applicable tax rate in India after surcharges, from 42.7 per cent to 39.
Rates and slabs under the Old Tax Regime remain unchanged.
After listing out the slabs, the minister also announced that the Old regime — which has higher tax rates but several exemptions — will only be available on request now, and the New regime will thus be considered the default system for everyone.
She did add a benefit to the New scheme: Now, salaried people with income of ₹ 15.5 lakh or more can subtract ₹ 52,500 as Standard Deduction while calculating their taxable income.
Ms Sitharaman got to the tax bit near the very end of her 87-minute speech: “I have five major announcements to make… These primarily benefit our hard-working middle class.”
The first one was about 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,” she declared, as ruling alliance members thumped their desks and cheered her and PM Narendra Modi.
“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 added.
She gave an example of how it will benefit: “An individual with an annual income of ₹ 9 lakh will be required to pay only ₹ 45,000.” This was ₹ 60,000 so far.
She then announced the benefit of Standard Deduction while calculating taxable income of salaried class and pensioners under the New regime: “Each salaried person with an income of ₹ 15.5 lakh or more will thus stand to benefit by ₹ 52,500.”
In her fourth announcement, she brought down the highest applicable tax rate from 42.74 per cent to 39.
“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 per month. In line with the increase in government salaries, I am proposing to increase this limit to ₹ 25 lakh,” she said.
