“India will focus on economic growth, job creation, and cut down the fiscal deficit.” (Changes to the new tax regime)
-Union Finance Minister (2023)
On the 1st of February, the whole nation was focused on the full-fledged Union Budget 2023. Well! It’s a common phenomenon, after all, it provides a trailer for the economic development of the country of the year. Who won’t be interested in that? In every financial budget, new plans are announced related to capital expenditure, defense, taxes, agriculture, health, employment, and the list goes on. But you know what is so special in this financial blueprint? It’s none other than NEW TAX REGIME. In this article, you will get a thorough understanding of the changes to the new tax regime as per the 2023-24 budget.
A Brief Overview (Changes to the new tax regime)
As we all know, the new tax regime was introduced back in April 2020 as an optional tax rate regime, especially for the HUF (Hindu Undivided Family). However, people still preferred the old tax regime over the new one! Why so? The chief reason is the deductions and exemptions that are possible in the old tax regime under numerous sections. For example, HRA, LTA, PPF, NPS, repayment of housing loans, payment of tuition fees, etc. This makes the old tax regime a very complicated one. Therefore, in this year’s budget, various changes were made to the new tax regime to simplify the taxation process and encourage people to adopt it. During the budget session for 2023-24, the current Finance Minister Nirmala Sitharaman announced five major changes concerning taxes. That changes were-
- Rebate hike to INR 7.00 Lakh
- Increase in basic exemption limit
- Introduction of New Income Tax Slabs
- New Rate of Standard Deduction
- Reduction of Surcharge for Riches
Details (Changes to the new tax regime)
This section describes the details of the above changes to the new tax regime.
Rebate hike to INR 7.00 Lakh
If your overall income is below INR 7.00 Lakhs, then you won’t have to pay any tax in the new tax regime! Quite interesting, right? Under section 87A of the Income-tax Act, 1961, the limit of net income for rebate has been hiked from INR 5.00 Lakh to INR 7.00 Lakh. Earlier the limit was up to INR 5.00 Lakh. However, if your total income is below INR 5.00 Lakh then you won’t have to pay any income tax in the old as well as the new tax regime. This rebate hike is a major relief to the middle class.
Increase in Basic Exemption Limit
A basic exemption limit refers to a threshold value of income where a person is free from paying any kind of income tax. The basic exemption limit in the new tax regime was INR 2.50 lakh. But now it has been increased to INR 3.00 Lakh. In simple words, you do not have to pay any income tax if your taxable income is below Rs. 3 lakhs.
Introduction of New Income Tax Slabs (Changes to the New Tax Regime)
The budget for 2023-24 modified the income tax slabs of the new tax regime. The significant alteration involved the breakdown of Income tax into six different slabs with different ranges of income. The maximum exemption limit of up to 3 lakhs served as a cherry on top of the new tax regime.
Now, here the confusion arises. Whether people earning INR 7 Lakhs or below have to pay any income tax or not? The answer, for now, is “NO.” Even though the slab seems irrelevant for people earning less than 7 lakhs. But even if they file the income tax for 5% or 10%, the amount may be refunded. However, the current government has not given any clarification on this issue. In case the government makes any new announcements regarding this issue, we will update you soon.
New Rate of Standard Deduction
Standard deduction refers to the portion of your income that is not accountable to tax. You may use it to reduce your taxation bill. The standard deduction rate has been extended in the new tax regime. Thus, under the modified new tax regime, salaried individuals and pensioners can avail of the standard deduction of INR 50,000 and INR 15,000 respectively.
Reduction of Surcharge for Riches
The income tax surcharge refers to an additional charge that you have to pay along with income tax. The government levies this surcharge if your earnings are more than 50 lakhs or if the income of your company is more than 1 crore. The rate of income tax surcharge has been reduced to 25% for wealthy taxpayers with an income of more than INR 5.00 crore annually. Earlier it was 37%. So, it is beneficial for super-rich taxpayers. Thus, they will prefer the new tax regime.
Thus, the overall changes to the new tax regime (2013-24) mainly involve rebates, an increase in basic exemption limits, modification in income tax slabs, new standard deductions, and income tax surcharge. The objective of making these changes was to make the new tax regime appealing to salaried individuals. You might have observed that there have been substantial changes in personal income tax. Eventually, it will immensely benefit the middle class. Thus, it will enhance economic growth and can combat recession as well.