Budget: Does the old tax regime exists? How common citizens tax rates will change
5 min read . Updated: 01 Feb 2023, 03:23 PM IST
Premium- New benefits in personal income tax regime was the showstopper in this Budget 2023. The new regime is most likely to boost consumption and give more money in the hands of a salaried individuals.
Budget 2023 comes with a slew of benefits for common citizens who are taxpayers. The new tax regime has been announced as a default tax regime with a host of benefits. Under the new regime, Finance Minister Sitharaman extended the tax exemption limit to ₹3 lakh, while introducing new tax rates. Also, she extended the benefits under standard deduction. But does that mean the old tax regime has ended.?
New benefits in personal income tax regime was the showstopper in this Budget 2023. The new regime is most likely to boost consumption and give more money in the hands of a salaried individuals.
Abheek Barua, Chief Economist and Executive Vice President, HDFC Bank, commentary on Budget 2023 said, "The budget also announced adjustments in income tax slabs that is likely to boost consumption and savings in the economy, benefitting taxpayers particularly at the lower brackets of the income pyramid."
The first and foremost tax benefit was announced on income up to ₹5 lakh which does not require paying taxes in both old and new tax regimes. FM proposed to increase the tax rebate limit to ₹7 lakh in the new tax regime.
Hence, if you're using the new tax regime, your income up to ₹7 lakh will be not required to pay any tax.
Shivam Thakral, CEO of BuyUcoin said, "the relaxation of the tax exemption limit to 7 lacs will increase the surplus funds for the common man which will spark activity in various sectors like investments in digital assets, consumer goods, and tourism.
Further, the FM announced six income slabs starting from ₹2.5 lakh under the new tax regime. She proposed to increase the tax exemption limit to ₹3 lakh. Further, a salaried individual whose income is between ₹3-6 lakh will have a tax rate of 5%, while the rate will be 10% on income of ₹6-9 lakh. Whereas, the tax rate will be 15% on income between ₹9-12 lakh, 20% on income between ₹12-15 lakh, and 30% rate on above ₹15 lakh income.
According to FM, this will provide major relief to all tax payers in the new regime.
Explaining the calculations on higher income tax slabs, FM said, 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 per cent from the existing liability of ₹1,87,500/.
Also, FM announced key benefits for the salaried class and the pensioners including family pensioners. She has extended the benefit of the standard deduction to the new tax regime.
It has been proposed that a salaried person with an income of ₹15.5 lakh or more will thus stand to benefit by ₹52,500.
Furthermore, the Centre has decided to reduce the highest personal income tax which is 42.74% ---which is among the highest in the world. FM has proposed to reduce the highest surcharge rate from 37% to 25% --- taking the maximum tax rate to 39% from 42.74%.
Lastly, FM said, the limit of ₹3 lakh for tax exemption on leave encashment on the 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. Thereby, in line with an increase in government salaries, FM proposed to increase this limit to ₹25 lakh.
The new tax regime is a welcome move and experts believe citizens will benefit from it.
Rakeshh Mehta, Chairman, of Mehta Equities said, "from the individual perspective, huge income tax relief with hike in tax slab structure would bring more money into the hands of the tax-payers that should help drive consumption growth over the long term."
But what about the old tax regime?
The old tax regime is still there!
In her budget speech, FM said, “We are also making the new income tax regime as the default tax regime. However, citizens will continue to have the option to avail the benefit of the old tax regime."
Under the old income tax slabs, income up to ₹2.5 lakh is exempted from tax. While a 5% rate is applicable on income from ₹2.5 to ₹5 lakh. The rate is 15% and 20% on income slab from ₹5 lakh to ₹7.5 lakh and from ₹7.5 lakh to ₹10 lakh. Lastly, above ₹10 lakh, the tax rate is 30%.
Manish Khanna- Co-founder at Unlisted Assets said, "According to the new tax system, the income tax rebate will rise from ₹5 lakh to ₹7 lakh, Though the new tax system will be the default, taxpayers could choose the previous one. In the new tax system, the FM has also decreased the number of tax slabs."
Khanna added, "The government has reduced the surcharge of the highest rate from 37% currently to 25% in new tax regime. A salaried person currently has the choice to choose the old tax system and keep using the standard tax deductions and exemptions. Otherwise, he or she might choose the new, more favourable income tax system, which does not offer any typical tax breaks or exemptions. The person will have to forego 70 tax deductions and exemptions under the new tax law, such as the HRA tax deduction, LTA tax deduction, Section 80C deduction of up to Rs. 1.5 lakh, and so on."
Also, the Unlisted Assets co-founder said, for people who were unable to take use of the existing tax deductions and exemptions, a new tax regime was announced. Additionally, it assists in reducing the burden of compliance for salaried taxpayers. The benefit in tax slab may give rise to savings and overall investment in the economy.
