Finance Minister Sitharaman Declares New Income Tax Regime as Default, But Allows Citizens to Choose Old Regime. Here is the Union Budget 2023, 5 Key Personal Income Tax Updates.
Union Finance Minister Nirmala Sitharaman provided good news for the middle and salaried class on Wednesday by announcing five significant changes to personal income tax. During her presentation of the 2023-24 Union Budget, she stated that these proposals will primarily benefit the hard-working middle class of the country. The new tax regime will be the default option, but individuals still have the choice to opt for the previous tax regime.
5 Key Personal Income Tax Updates for Union Budget 2023
The first proposal concerned a change to the tax rebate for personal income tax. Currently, individuals with an income up to ₹5 lakh are exempt from paying income tax under both the old and new tax regimes. The Finance Minister proposed to increase this rebate limit to ₹7 lakh for the new tax regime. This means that those in the new tax regime with an income of up to ₹7 lakh will not be required to pay any income tax.
The second proposal is to simplify personal income tax regime by reducing the number of brackets to five and increasing the income tax exemption limit to ₹3 lakh. In 2020, the Finance Minister introduced a new personal income tax regime with six different tax brackets starting from ₹2.5 lakh.
|₹3-6 lakh||5 percent|
|₹6-9 lakh||10 per cent|
|₹9-12 lakh||15 per cent|
|₹12-15 lakh||20 per cent|
|Above ₹15 lakh||30 per cent|
The third proposal concerns the salaried class and pensioners, including family pensioners. The Minister suggested extending the standard deduction to the new tax regime. This means that salaried individuals with an income of ₹15.5 lakh or more will benefit by an amount of ₹52,500.
The fourth proposal concerning personal income tax focused on the current highest tax rate of 42.74 percent. The Minister proposed to lower the highest surcharge rate from 37% to 25% in the new tax regime, which would result in a reduction of the maximum tax rate to 39%.
The fifth and final major change in personal income tax concerned the limit for tax exemption on leave encashment upon retirement for non-government salaried employees. This limit of ₹3 lakh was established in 2002 during the Atal Bihari Vajapayee government, when the highest basic pay in the government was ₹30,000 per month. Keeping in mind the increase in government salaries, the Finance Minister proposed to increase this limit to ₹25 lakh.