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Business News/ Money / Personal Finance/  Budget 2023: No income tax up to Rs 7 lakh but it falls under 10% tax slab; How to save tax then?

Budget 2023: No income tax up to Rs 7 lakh but it falls under 10% tax slab; How to save tax then?

The new tax regime offers respite to low and middle-income taxpayers as they benefit from low tax liability.

Those earning up to Rs 7 lakh have zero tax liability under the new tax regime.Premium
Those earning up to Rs 7 lakh have zero tax liability under the new tax regime.

The Budget 2023 announcement on February 01, 2023 brought cheer to many income taxpayers seeking simplification in the tax assessment process and reducing the number of income slabs. The Union finance minister Nirmala Sitharaman said, “The government proposes to increase the income tax rebate limit from Rs 5 lakh to Rs 7 lakh in the new tax regime.".

While this relaxation in tax liability among the low and middle-income groups, many questions were posed on how taxpayers earning between Rs 6 lakh and Rs 9 lakh could be completely exempt from tax given current income tax slab rates.

The income tax rates under the new tax regime include

Income SlabTax Liability (in %)
Income of Rs 0-3 lakhNil
Income above Rs 3 lakh and up to Rs 5 lakh5%
Income of above Rs 6 lakh and up to Rs 9 lakh10%
Income of more than Rs 12 lakh and up to Rs 15 lakh20%
Income above Rs 15 lakh30%

Though taxpayers have the option to assess their income tax liability according to the rates mentioned in the old regime, the new income tax regime will be the default tax regime. With 5% and 10% rates being imposed on income in the range of Rs 3-5 lakh and Rs 6-9 lakh, respectively, taxpayers are wondering at the available exemptions and deductions that would allow scope for a complete exemption for those falling in this income group.

CA Kanan Bahl, a Finance Educator and Growth Consultant shares, “Those earning up to Rs 7 lakh need not pay taxes if they opt for the new regime. They can also consider investing in Section 80C options up to Rs 1.5 lakh and claim Rs 50,000 of the standard deduction. This way they'll be neutral with respect to the tax regimes."

Individuals who choose the new tax regime and have taxable income of up to Rs 7 lakh will be eligible for a full tax rebate under Section 87A of the Income Tax Act, 1961.

Let’s see how the same is possible.

Under the new tax slab, your tax liability will be

Income up to Rs 3 lakh: Nil

Income from Rs 3 lakh to Rs 5 lakh: 5% of Rs 3,00,000 = Rs 15000

Income from Rs 6 lakh to Rs 7 lakh: 10% of Rs 1,00,000 = Rs 10000

So, the total tax liability turns out to be Rs 25,000

The revised limit under Section 87A of the Income Tax Act is applicable only when one calculates income tax under the new regime.

Taxpayers choosing the new tax regime can avail of the benefits of a full rebate on taxable income up to Rs 7 lakh. The net result is “Zero Tax Liability". However, taxpayers will be exempt from tax only when their gross taxable income is Rs 7 lakh.

Scenario one: Old vs new tax regime
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Scenario one: Old vs new tax regime

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Published: 07 Feb 2023, 08:28 AM IST
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