Finance Minister Nirmala Sitharaman, in a big announcement for the middle class during her Budget's announcement, rejigged the income tax slabs. She said that those with an income of Rs 5 lakh and below do not pay any income tax, that limit has been increased to Rs 7 lakh.
“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,” she said. FM Sitharaman also said that the number of slabs have been reduced from the six slabs introduced in 2020 to five and increasing the tax exemption limit to Rs 3 lakh.
The new Income Tax rates are:
Finance Minister Sitharaman said that the new tax regime is the default tax regime. She also said that the government will adopt more measures to make the voluntary tax regime more attractive.
The minister said that the changes in personal income tax "primarily benefits our hard-working middle class”. She said that an individual with an annual income of Rs 9 lakh will be required to pay Rs 45,000, which is only 5 per cent of 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,” she said.
The minister also proposed to extend the benefit of 34 standard deduction for the salaried class and the pensioners. “Each salaried person with an income of Rs 15.5 lakh or more will thus stand to benefit by Rs 52,500,” she added.
For the highest tax rate of 42.74 per cent, the highest surcharge rate has been reduced from 37 per cent to 25 per cent. 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/- pm. In line with the increase in government salaries, I am proposing to increase this limit to Rs 25 lakh,” she announced.
With these changes, revenue of Rs 37,000-38,000 crore in direct taxes and Rs 1,000 crore in indirect taxes will be foregone with revenue of Rs 3,000 crore will be additionally mobilised. FM Sitharaman said that the total revenue foregone will be about Rs 35,000 crore annually.
Also read: Budget 2023 LIVE updates: No tax for income up to Rs 7 lakh, says Nirmala Sitharaman