New Delhi: Finance Minister Nirmala Sitharaman has announced to increase the exemption limit in the new tax regime in her budget 2023. The Finance Minister has increased the exemption limit to Rs 7 lakh in the new tax regime, which means that individuals who earn up to this amount will not be subject to taxation under the new regime or in other words will have to pay ‘zero’ tax . The income tax structure in the new personal tax regime has also been revised by the finance minister by reducing the number of tax bands to five from the previous six, while the tax exemption limit has been raised to Rs 3 lakh from the earlier Rs 2.5 lakh.
In the new tax regime, the highest personal income tax surcharge rate for income above Rs. 2 crore has been reduced from 37% to 25%. As a result, the maximum personal income tax rate, which was earlier 42.74%, will come down to 39%.
Experts believe that under the new system, all taxpayers will feel a lot of relief from the announcement of the Finance Minister. In this context, we tried to understand which tax regime is beneficial for individual or salaried class taxpayers.
The new tax regime has been made the default tax regime; However, taxpayers will have the option to migrate to the old tax regime. Taxpayers who do not have business income can exercise this option every year they file taxes.
CA Dharmendra Chachan, Partner, Chachan & Lath LLP Said Reema Sharma of Zee News, “Finance Budget 2023 has given a significant boost to High Net-Worth Individuals (HNIs) by reducing the highest surcharge rate (which is charged over and above normal income tax) from 37% to 25% for not opting for the old tax regime provided benefits. , On the other hand, restricting the deduction under Section 54 and 54F for investment in a residential house to only Rs 10 crore has left a huge hole in the pocket of HNIs. This may result in an increase in tax payments for individuals and Hindu undivided families with long-term capital gains.
He further said that the rate of tax collected at source in respect of remittances made abroad for purposes other than travel packages for education and medical treatment and travel abroad is now proposed to be raised to 20% as against 5% without any ceiling. .
“Various reliefs have been extended due to rising inflation to mitigate the hardships faced by the common man in the post-pandemic era. The important amendments introduced under the new tax regime are amendment in income tax slabs from 6 to 5; Increase in basic exemption from Rs 2.5 lakh to Rs 3 lakh; Allowing standard deduction of Rs 50,000 to salaried taxpayers, which was earlier not available under the new tax regime. Also, a taxpayer opting for the new tax regime will not have to pay any tax if the total income is Rs 7,00,000. CA Naresh Lath, Partner, Chachan & Lath LLP.
Meanwhile, the new income tax slabs have created a lot of confusion among people, who are unable to figure out how income up to Rs 7 lakh will be nil tax if the above tax rate slabs are applicable.
Chachan explains the income tax calculation with the table below:
To clear the confusion among people on the proposed slab rates of the new tax regime and also how Rs 7 lakh will be tax free, here is the reference point that needs to be understood. There will be zero tax for those earning up to Rs 3 lakh. There is a 5 per cent tax rate for those earning between Rs 3-6 lakh. The new tax regime has a 10 per cent tax rate for people with an income of Rs 6-9 lakh.
Now, while maintaining the above tax slabs, if a taxpayer is going to file his ITR for the new tax regime, the taxpayer will still be eligible to be taxed under the tax slabs proposed under the new tax regime. However, under the new tax regime, they will get exemption under section 87A, which means no income tax on income up to Rs 7 lakh. Earlier this exemption was up to Rs 5 lakh.