New Delhi: The Centre made Wednesday a much-awaited announcement on increasing the income level up to which no income tax is payable. The Centre increased the non-taxable income to Rs 7 lakh a year from 2023-24. Earlier non-taxable income stood at Rs 5 lakh. However, there is a catch: The change will be applicable for those who choose the new tax regime.
The new tax regime was introduced in 2020. This new regime does not have the usual exemptions on insurance premium, mutual funds and other such investments. However, it did not gain popularity as it resulted in higher tax burden in many cases. Those still using the old regime continue to get exemptions on investments, after which their final taxable income is calculated.
A five-slab structure will apply now under the new regime, also raising the no-tax slab by Rs 50,000. Now income between Rs 0-3 lakh will be non-taxable; earlier it was Rs 0 to 2.5 lakh.
Here’s a look at the new tax slabs
Rs 3 lakh to Rs 6 lakh will be taxed at 5 per cent;
Rs 6 lakh to Rs 9 lakh, at 10 per cent;
Rs 9 lakh to 12 lakh, at 15 per cent;
Rs 12 lakh to 15 lakh, at 20 per cent
Those who are earning above Rs 15 lakh will be taxed at 30 per cent.
Finance Minister Nirmala Sitharaman also brought down the highest applicable tax rate in India after surcharges, from 42.7 per cent to 39.
After listing out the slabs, the minister also announced that the old regime – which has higher tax rates but several exemptions – will only be available on request now. The new regime will thus be considered the default system for everyone. She did, however, add a benefit to the new scheme. Salaried people with income Rs 15.5 lakh or more can subtract Rs 52,500 as standard deduction while calculating their taxable income.
Sitharaman got to the tax bit near the very end of her 87-minute speech: “I have five major announcements to make. These will primarily be beneficial for our hard-working middle class.”
The first one was about rebate. “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,” Sitharaman said.
“The second proposal relates to middle-class individuals. I had introduced, in the year 2020, the new personal income tax regime with six income slabs starting from Rs 2.5 lakh. I propose to change the tax structure in this regime by reducing the number of slabs to five and increasing the tax exemption limit to Rs 3 lakh,” Sitharaman added.
Sitharaman gave an example of how it will benefit the middle class: “An individual with an annual income of Rs 9 lakh will be required to pay only Rs 45,000. Earlier the person has to pay Rs 60,000.”
Sitharaman then announced the benefit of standard deduction while calculating taxable income of salaried class and pensioners under the new 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.
In her fourth announcement, she brought down the highest applicable tax rate from 42.74 per cent to 39%.
“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,” Sitharaman said.