From New Personal Tax Slabs, Standard Deduction to Rebate, What FM Sitharaman's Budget Means for You

The Narendra Modi Sarkar on Wednesday set the tone for the 2024 Lok Sabha elections as it gave the salaried class reason to cheer by announcing Income Tax relief — with the disclaimer that it was only applicable for those who had opted for the new tax regime.

In what is being seen as a push for the salaried class taxpayer to switch to the new tax regime where no exemptions on investments are provided, the finance minister in her budget for 2023-24 allowed a standard deduction of Rs 50,000 under the new regime.

For the “hard-working middle class”, Finance Minister Nirmala Sitharaman announced rebate, saying: “Currently, those with income up to Rs 5 lakh do not pay any income tax in both old and new tax regimes. I propose to increase the rebate limit to Rs 7 lakh in the new tax regime. Thus, persons in the new tax regime, with income up to Rs 7 lakh will not have to pay any tax.”

The finance minister also changed the new personal income tax regime from six to five slabs and increased the tax exemption limit to Rs 3 lakh. The new tax rates are:

Rs 0-3 lakh — Nil

Rs 3-6 lakh — 5 per cent

Rs 6-9 lakh — 10 per cent

Rs 9-12 lakh — 15 per cent

Rs 12-15 lakh — 20 per cent

Above Rs 15 lakh — 30 per cent

Explaining the benefit, Sitharaman said: “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’s third proposal was for the salaried class and pensioners, including family pensioners, for whom she extended the benefit of standard deduction 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,” she said.

She then moved to the fourth announcement in personal income tax regarding the highest tax rate of 42.74 per cent. “This is among the highest in the world. I propose to reduce the highest surcharge rate 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.”

Lastly, the limit of Rs 3 lakh for tax exemption on leave encashment on retirement of non-government salaried employees was last fixed in the year 2002, when the highest basic pay in the government was Rs 30,000 per month. “In line with the increase in government salaries, I am proposing to increase this limit to Rs 25 lakh. We are also making the new income tax regime as the default tax regime. However, citizens will continue to have the option to avail the benefit of the old tax regime.”

The government in Budget 2020-21 brought in an optional income tax regime, under which individuals and Hindu Undivided Families (HUFs) were to be taxed at lower rates if they did not avail specified exemptions and deductions, like house rent allowance (HRA), interest on home loan, investments made under Section 80C, 80D and 80CCD. Under this, total income up to Rs 2.5 lakh was tax exempt.

Currently, a 5 per cent tax is levied on total income between Rs 2.5 lakh and Rs 5 lakh, 10 per cent on Rs 5 lakh to Rs 7.5 lakh, 15 per cent on Rs 7.5 lakh to Rs 10 lakh, 20 per cent on Rs 10 lakh to Rs 12.5 lakh, 25 per cent on Rs 12.5 lakh to Rs 15 lakh, and 30 per cent on above Rs 15 lakh.

The scheme, however, has not gained traction as in several cases it resulted in higher tax burden. With effect from April 1, these slabs will be modified as per the Budget announcement.

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