Union Budget 2023: Income Tax changes to cost govt Rs 35,000 crore annually

Finance Minister Nirmala Sitharaman announced certain changes in the income tax regime. She said that the changes were made to benefit the “hard-working middle class”. However, these changes in the income tax regime would cost the government Rs 35,000 crore annually. 

The minister said that due to the proposed changes, revenue of Rs 37,000-38,000 crore in direct changes and Rs 1,000 crore in indirect changes will be foregone by the government. On top of that, Rs 3,000 crore will be additionally mobilised. “The total revenue forgone is about Rs 35,000 crore annually,” she said during her Budget 2023 speech. 

FM Sitharaman said that currently those with income of up to Rs 5 lakh do not pay income 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. 

She also said that the number of slabs in the tax structure introduced in 2020 has been reduced to five, and the tax exemption has been increased to Rs 3 lakh. 

Under the changes, those earning up to Rs 3 lakh need not pay any tax, while those who earn from Rs 3-6 lakh will pay 5 per cent, Rs 6-9 lakh will pay 10 per cent, Rs 9-12 lakh will pay 15 per cent, Rs 12-15 lakh will pay 20 per cent and those who earn above Rs 15 lakh will pay 30 per cent. 

“This country has been waiting for direct taxation to be simplified. Therefore, the new taxation regime that we brought in for direct taxation two, three years ago has now got greater incentives and greater attraction so that people can unhesitatingly move from the old to the new. We are not compelling anybody. Those who want to remain in the old regime can still remain there. But the new one is attractive because it gives a greater rebate. It also provides for simplified and smaller slabs, smaller lower rates of taxation and also slabs which are nicely broken down,” she said during the post-Budget press conference. 

The minister announced the extension of benefit of 34 standard deduction to the new tax regime for the salaried class and pensioners. She also stated that the highest surcharge of 37 per cent will be reduced to 25 per cent in the highest tax rate of 42.74 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 said.  

Also read: New income tax regime vs old tax regime: Here’s how the two differ from each other

Also read: Union Budget 2023-24: Why old tax regime is still better than new tax regime