Finance Minister Nirmala Sitharaman, in her fifth consecutive Union Budget, decided to spread cheer among all categories of taxpayers. The finance minister made five major changes in the personal income tax. These included changes in the tax slabs, higher exemption limit and significant relief to both the middle class and the super rich.
At the same time, there is also a nudge to move from the exemption to the no-exemption or alternative tax regime introduced in Budget 2020. For example, the latter regime has been given the default tax status though one can still choose to continue with the old tax regime.
To make the alternative regime more attractive to taxpayers, the tax rebate under Section 87A of the Income Tax Act has been increased to `7 lakh from the current `5 lakh. “Thus, persons in the new tax regime, with income up to Rs 7 lakh will not have to pay any tax,” she said.
According to experts, the government is basically trying to make the old exemption regime inconsequential for taxpayers. So, those who have been sticking on to the old regime for tax benefits will no longer be inclined to follow it.
Said Kuldip Kumar, former national leader, global mobility practice, PwC India: “The Budget proposals will bring a paradigm shift in the prevalent tax regime in India. The new tax regime is proposed to be default regime in the years to come. These proposals are in line with the government’s objective of simplified tax system to move away from the paperwork of exemption/deductions.”
Added Suresh Sadagopan, director, Ladder 7 Wealth Planner: “FM has chosen not to change the personal income tax structure much. She has tweaked the new income tax regime and has rationalised the tax structure, resulting in somewhat lower tax incidence. The major relief is that there would be no tax up to `7 lakh under this regime.”
The exemption limit has been increased from `2.5 lakh to `3 lakh. The number of slabs has also been reduced to five.
Another proposal for the salaried and pensioners, including family pensioners, was on extending the standard deduction benefit to the new tax regime. “Each salaried person with an income of Rs 15.5 lakh or more will thus stand to benefit by `52,500,” the minister said.
The super rich with income of `5 crore and above, who were paying income tax rate of 42.74%, have been given a significant tax benefit as the finance minister proposed to reduce the highest surcharge rate from 37% to 25% in the new tax regime. The proposed change would result in reduction of the maximum tax rate to 39%.
Another major announcement on personal income tax involved the limit for tax exemption on leave encashment on retirement of non-government salaried employees. The earlier limit of `3 lakh was fixed in 2002. The new limit for this will be `25 lakh — an eight-fold increase.