How taxes are calculated on salary above ₹7 lakh in new regime? A quick view
3 min read . Updated: 04 Feb 2023, 10:40 PM IST
Premium- Among the key highlights of new tax regime would be, the exemption limit to the salary of ₹7 lakh. This means, a taxpayer whose income is ₹7 lakh will not be required to pay any tax. But this is not the case with the old regime, where the exemption limit is ₹5 lakh.
One of the biggest limelight of the Budget 2023 is none other than personal income tax slabs which have been modified further and are likely to boost consumption demand. Experts welcomed the revised new income tax slab with open arms. However, the government has not done away with the old tax regime. But now, taxpayers have the option to pay their taxes in either of the two regimes. For a layperson, it is firstly important to understand how your taxes are calculated in the new regime.
Among the key highlights of new tax regime would be, the exemption limit to the salary of ₹7 lakh. This means, a taxpayer whose income is ₹7 lakh will not be required to pay any tax. But this is not the case with the old regime, where the exemption limit is ₹5 lakh.
Further, Finance Minister Nirmala Sitharaman in her budget speech, proposed 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.
New revised tax rates are:
- Income slab of ₹3 lakh: No tax levied
- Income of ₹3 lakh to ₹6 lakh: 5% tax rate
- Income of ₹6 lakh to ₹9 lakh: 10% tax rate
- Income of ₹9 lakh to ₹12 lakh: 15% tax rate
- Income of ₹12 lakh to ₹15 lakh: 20% tax rate
- Above ₹15 lakh income: 30%.
FM announced that the new income tax regime will be the default tax regime. However, citizens will continue to have the option to avail the benefit of the old tax regime.
Abhishek Soni, Co-founder & CEO, of Tax2win, a Fisdom company explains key highlights for taxpayers. These are:
- New tax regime is announced as a default regime. However, taxpayers will have the option to choose the old regime.
- No tax is to be paid for income up to ₹3 lakh.
- The personal tax slabs have been reduced from 6 to 5.
- The income Tax rebate limit is increased to ₹7 lakh from ₹5 lakh
- The surcharge rate is slashed to 25% from 37% under the new tax regime.
Soni further explains the tax calculation under the new tax regime for higher and lower income in two examples.
Example 1:
He said, earlier to the budget 2023, the rebate under section 87 A was limited to 5 lakh. The income Tax rebate limit is now increased to ₹7 lakh under the new tax regime.
The maximum tax rebate under section 87A for ₹5 lakh would come to around ₹12,500, while this amount is higher to ₹15,000 for the tax exemption limit of ₹7 lakh.
Example 2: Now, let's say the total income of Mr. A is Rs. 15.5 lakh then:-
From the calculation for income salary of ₹15.5 lakh, it can be seen that the total savings on tax amount are ₹52,500 from the revised new tax regime than the previous one.
In the previous new tax regime, no tax was levied on income to ₹2.5 lakh. Other tax rates were:
- Income ₹2.5 lakh to ₹5 lakh: 5% rate
- Income ₹5 lakh to ₹7.5 lakh: 10% rate
- Income ₹7.5 lakh to ₹10 lakh: 15% rate
- Income ₹10 lakh to ₹12.5 lakh: 20% rate
- Income of ₹12.5 lakh to ₹15 lakh: 25% rate
- Above ₹15 lakh income: 30% rate
Post-budget, Ashish Kumar Chauhan, MD& CEO, NSE said, "this is a growth-oriented budget, one of the best in years, with a focus on both infrastructure and job creation, while reducing income tax for pretty much everyone, and lots of money to states. The Budget would support growth and the Indian consumption story, keep us in good stead, given global headwinds in China and developed markets, and until the rest of the world eases."
Chauhan added, "Before the budget was presented, investors worried about a rise in capital gains. No change there, has also created a positive reaction. Overall this is a very positive budget for the markets, with something for everyone. I give the Budget 10/10."
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.
