In a bid to make the New Tax Regime more effective to taxpayers, Finance Minister Nirmala Sitharaman has proposed several changes in it in the Budget 2023.
For instance, the rebate limit in the new tax regime has been proposed to be increased to Rs 7 lakh from Rs 5 lakh earlier. Thus, persons in the new tax regime, with income up to Rs 7 lakh, will not have to pay any tax now. (Also Check: New Tax Regime Calculator)
Secondly, the number of slabs in the new tax regime has been reduced from 6 to 5, while the tax exemption limit has been increased to Rs 3 lakh. The new tax rates are:
“This will provide major relief to all tax payers in the new regime. An individual with an annual income of Rs 9 lakh will be required to pay only Rs 45,000. This is only 5 per cent of his or her income. It is a reduction of 25 per cent on what he or she is required to pay now, ie, Rs 60,000. Similarly, an individual with an income of Rs 15 lakh would be required to pay only Rs 1.5 lakh or 10 per cent of his or her income, a reduction of 20 per cent from the existing liability of Rs 1,87,500,” the FM said in her budget speech.
Thirdly, for the salaried class and pensioners, including family pensioners, the benefit of standard deduction has been introduced to the new tax regime. Each salaried person with an income of Rs 15.5 lakh or more will thus stand to benefit by Rs 52,500.
Fourthly, in view of the current highest tax rate, which is 42.74 per cent in India, the highest surcharge rate has been proposed to be reduced from 37 per cent to 25 per cent in the new tax regime. This would result in reduction of the maximum tax rate to 39 per cent.
Commenting on the same, Adhil Shetty, Chief Executive Officer (CEO) and Co-founder of Bankbazaar.com, and Co-Chair of the FICCI Fintech Committee, said, “HNIs impacted by the surcharge have reasons to be happy. Mid income groups too. Essentially, income up to Rs 7.5 lakh a year is now tax-free. This will boost sentiment at those income levels. Taxes may marginally reduce between Rs 7 and 15 lakh in the new regime. Taxpayers now need to evaluate if they still need to be on the old regime. The new regime is going to be the way forward. The old regime with its brackets frozen in 2013 may not be enhanced anytime soon.”
It may be noted that taxpayers earning above Rs 15 lakh will be taxed at 30% in both regimes.
“In the new regime, due to the enhanced tax brackets, the taxes for anyone earning more than Rs 15 lakh will marginally reduce whereas nothing changes in the old regime. The government has proposed to reduce the highest surcharge rate from 37 per cent to 25 per cent in the new tax regime. This would mean lower taxes for anyone earning more than Rs 5 crore,” Shetty added.
It may be noted that as the new tax regime, which came into effect from April 1, 2020, had failed to take off owing to low interest of taxpayers, there were high expectations that the FM will do something in the Budget 2023 to make it more attractive.