Union Budget 2024: A look at 5 personal income tax announcements FM Sitharaman made this year

Budget 2024: Union Finance Minister Nirmala Sitharaman will be reading out the interim Budget for FY2024-25 on February 1, 2024. As the Lok Sabha elections are due early next year, the full budget will be presented after the new government takes charge. The specifics of this budget will only be held valid till the results of the Lok Sabha elections 2024 are announced and a new government comes to power.

Earlier this month, FM Sitharaman while addressing CII Global Economic Policy Forum 2023 Summit said that the Union Budget 2024 scheduled to be presented on February 1 is unlikely to make any "spectacular announcements".

“I don’t want to be a spoilsport, but the 1st February Budget is just a Vote on Account; a Budget to meet expenditure till the next government comes to power. No spectacular announcements. You will have to wait till after the General Election," Sitharaman said.

On February 1, 2023, FM Sitharaman delivered pragmatic, populist-in parts and a growth-oriented Budget. While presenting the Union Budget for FY 2023-24, Sitharaman said that the proposals regarding personal income tax will primarily benefit the country's “hard-working middle class”.

Let's take a quick look at the prominent tax announcements FM Sitharaman made in Budget 2023

1. Budget 2023: New tax slabs announced

The income slabs under the new personal income tax regime were revised from six to five. The tax exemption limit has been increased to Rs 3 lakh.

The new applicable tax rates hold zero taxes for those earning upto Rs 3 lakh, 5% for Rs 3-6 lakh, 10% for Rs 6-9 lakh, 15% for Rs 9-12 lakh, 20% for Rs 12-15 lakh and 30% for Rs 15 lakh and beyond.

“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 ₹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," Sitharaman said on February 1 while presenting Budget 2023.

Given below are the various tables for the revised income tax slabs and rates for FY23-24:

Income Tax Slab   Income Tax Rate
Rs 0-300,000      Nil
Rs 300,000-600,000      5 per cent
Rs 600,000-900,000      10 per cent
Rs 900,000-1,200,000    15 per cent
Rs 1,200,000-1,500,000  20 per cent
Rs 1,500,000 and above  30 per cent
   
2. Budget 2023: New tax regime - the default tax regime

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 new tax regime was introduced in 2020 with six income tax slabs starting from Rs 2.5 lakh.

In Budget 2023, proposed to reduce the number of slabs to five and increase the tax exemption limit to Rs 3 lakh.

3. Revised standard deduction

Budget 2023 introduced a standard deduction of Rs 50,000 under New Tax Regime applicable from FY 2023-24. The Budget 2023 also introduced deduction under Section 57(iia) of family pension income.

It also introduced a deduction of amount paid or deposited in the Agniveer Corpus Fund under Section 80CCH(2).

“Each salaried person with an income of Rs 15.5 lakh or more will thus stand to benefit by Rs 52,500,” FM Sitharaman said during her speech.

4. Budget 2023: Maximum tax, along with surcharge, will be 39%

FM Sitharaman said the highest surcharge rate, which was 37 per cent at that time, will be slashed to 25 per cent. She said the proposed change would result in reduction of the maximum tax rate to 39 per cent.

“The highest tax rate which in our country is 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," FM said.

5. Budget 2023: Leave encashment

The government, during the Budget 2023, proposed to increase the limit of Rs 3 lakh for tax exemption on leave encashment on retirement of non-government salaried employees to Rs 25 lakh

The limit of Rs 3 lakh was last fixed in 2002 during the Atal Bihari Vajapayee government when the highest basic pay in the government was Rs 30,000 per month.

Sitharaman, in her Budget speech, said: “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.”

For employees in the private sector, the leave encashment after retirement or resignation is taxable as "Income from Salary." Employees can claim an exemption under Section 10 (10AA)(ii) of the Income-tax Act.