Here’s how Budget 2023 is impacting the lifestyle of middle-class people

Understanding the benefits of 2023 Union Budget for salaried employees

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Impact of Budget 2023 on salaried employees

“The hardest thing to understand in the world is the income tax” – Albert Einstein and “the best measure of a man’s honesty isn’t his income tax return” – Arthur C. Clarke.

The two quotes aptly define the state of our taxation system – stressed public by high taxes and stressed government by tax evasions. The government thus introduced a new tax regime aimed to simplify the tax laws and reduce the tax burden for individuals by offering lower tax rates in exchange for giving up certain exemptions and deductions. The new regime was introduced in 2020 and is expected to make the tax system more equitable and encourage compliance. To understand how Budget 2023 is impacting the lifestyle of middle-class people, we got in touch with Rishabh Jain, Labour Law Advisor. Here’s what he has to say:

How many times can you switch between the new tax regime and the old tax regime?

Although, an individual can switch between the two regimes every financial year. The facility to switch between the new and old tax regimes is available only for those individuals having salaried income and who do not have business income.

But which regime to choose?

There can be no definitive answer as to which regime is best (old or new), as it depends on the individual’s particular circumstances. 

Under the old tax regime, individuals have the option to claim various exemptions and deductions, which can reduce their taxable income and result in a lower tax liability. However, the tax rates under the old regime are higher compared to the new regime.

On the contrary, under the new tax regime, individuals will have to forgo certain exemptions and deductions in exchange for lower tax rates. This may result in a higher taxable income and higher tax liability for some individuals.  Although, there are multiple provisions for salaried employees offered in the budget.

What are the provisions for salaried employees in the Indian budget, 2023?

Tax limit for Salaried employees: The no-tax income level has increased from Rs 5 lahks to Rs 7 lahks by proposing to increase the tax rebate under  87A of the Income-tax Act, 1961.

Standard Deduction: Salary will be taxed under the head ‘Income from Salary’. The standard deduction for salaried employees to INR 50,000, and Rs 15,000 or 1/3rd of pension, whichever is lower for pensioners. Effectively, Rs 7.5 lakhs are your tax-free income under the new regime.

However, the new tax regime offers no benefits that taxpayers can avail of under any section 80C, the home loan tax benefits under the old tax regime.

Leave Encashment: The exemption limit for leave encashment has been increased to Rs 25 lahks from Rs 3 lahks for non-government employees under section 10(10AA).

The taxation limit for small businesses has increased from Rs 2 crore to Rs 3 crore under section 44AD and from Rs 50 lakhs to Rs 75 lakhs for professionals like doctors, engineers, lawyers, and others under section 44ADA.

The budget seems to enhance taxpayers. But as per Rishabh Jain from Labour Law Advisor, “It is important to determine the most tax-efficient regime. Rishabh Jain seeks everyone to consider factors such as taxable income, the exemptions and deductions you are eligible for, and your personal financial goals before choosing the tax regime. For a person taking tax exemption of more than Rs 4,00,000, the old regime is more beneficial, without considering the effect of surcharge reduction, which is capped at Rs 5 crore.”

Rishabh Jain highly recommends taking consultation with a tax professional who can help you determine the best regime for your specific circumstances.

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First published on: 05-03-2023 at 11:10 IST
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