The government is not happy with the response received to the new tax regime applicable to individual tax payers. In order to ensure that more and more taxpayers are covered under the new tax regime, the government has proposed certain provisions in the budget presented on 1st February, 2023. Let us discuss the proposed measures.
More categories of tax payers are proposed to be covered
Earlier the option of the new tax regime was available only to individuals and Hindu Undivided Families (HUF) who are resident of India. The finance minister has proposed to make the new tax regime available even to all the persons who are taxed at the same slab rates. So now the Association Of Persons (AOP) (other than a co-operative society), or Body Of Individuals (BOI) and certain artificial juridical person shall also be eligible to avail the option to be taxed either under the new tax regime or under the old tax regime. It is interesting to note that the new tax regime now will be a default option and you will have to proactively exercise the option to be taxed under the old tax regime.
Higher eligibility criteria for rebate under Section 87A
The finance minister has proposed that a person under the new tax regime will get a rebate of Rs 25,000 under Section 87A if his total income does not exceed seven lakh rupees during the year. However, for those who opt for the old tax regime the threshold limit for being eligible to claim rebate under Section 87A is retained at 5 lakh. Since a person who does not have any business income can opt for either scheme every year, he will opt for new tax regime only if it offers him overall lower tax. The enhanced threshold limit will be hugely beneficial to all self-employed people who have already exercised the option to be taxed under the new tax regime.
Higher basic exemption limit for those opting new tax regime against old tax regime
In order to make the new tax regime attractive, the finance minister has proposed three lakh rupees as the minimum amount upto which no tax will be payable against two lakhs fifty thousand rupees for those who opt for old tax regime. So effectively the basic exemption limit has gone up by fifty thousand rupees for all those who opt for the new tax regime.
Tweaked tax slabs for new tax regime
The present new tax regime offers five tax slabs starting from Rs 2.50 lakh and progressing by 2.50 lakh till Rs 15 lakh of income. The slab tax rate for each of these slabs is 5%, 10%, 15%, 20% and 25%. Income beyond 15 lakh is taxed at 30%. Now the finance minister has proposed four slabs for new tax regime. The new tax slab starts from Rs 3 lakh and progresses by Rs 3 lakh till Rs 15 lakh. The respective slab rates are 5%, 10%,15% and 20%. Income beyond 15 lakh is taxed at a flat rate of 30% under the proposed new tax regime as well.
Allowance for standard deduction and profession tax for salaried
Presently, under the New Tax regime, you are not entitled to claim standard deduction against your salary/pension income which is available under the old regime. The finance minister has proposed to remove this discrimination and make this deduction available under the new tax regime as well.