Sitharaman announced that the new income tax regime will now be the default tax regime. However, citizens will continue to have the option to avail the benefit of the old tax regime.
In a huge relief to middle- and salaried-class people, Union finance minister Nirmala Sitharaman on Wednesday announced five major changes in personal income tax. 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”. Sitharaman announced that the new income tax regime will now be the default tax regime. However, citizens will continue to have the option to avail the benefit of the old tax regime.
Here are the five major announcements:
1) The first proposal was related to the rebate on personal income tax. Those with income up to ₹5 lakh do not pay any income tax under both old and new tax regimes. Sitharaman proposed to raise this rebate limit to ₹7 lakh in the new tax regime. “Thus, persons in the new tax regime, with income up to ₹7 lakh will not have to pay any tax,” she said.
2) In 2020, Sitharaman had introduced a new personal tax regime with six income tax slabs starting from ₹2.5 lakh. She has now proposed to reduce the number of slabs to five and increase the tax exemption limit to ₹3 lakh.
3) The third proposal was for the salaried class and the pensioners including family pensioners. She proposed extending the standard deduction benefit to the new tax regime. “Each salaried person with an income of ₹15.5 lakh or more will thus stand to benefit by ₹52,500,” the minister said.
4) Her fourth proposal in personal income tax was regarding the highest tax rate, which currently stands at 42.74 per cent. Sitharaman proposed to reduce the highest surcharge rate from 37% to 25% in the new tax regime. She said the proposed change would result in reduction of the maximum tax rate to 39 per cent.
5) The fifth and the last major announcement on personal income tax involved the limit on for tax exemption on leave encashment on retirement of non-government salaried employees. The limit of ₹3 lakh was last fixed in 2002 during the Atal Bihari Vajapayee government when the highest basic pay in the government was ₹30,000 per month. In line with the increase in government salaries, Sitharman proposed to increase this limit to ₹25 lakh.
The new taxation regime is now more attractive as it gives greater rebates, the finance minister said in the post-budget interaction with media.
New income tax slabs 2023 – 24:
- Up to Rs 3 lakh income there is 0% or NIL tax
- From Rs 3 lakh to Rs 6 lakh the tax rate is 5%
- From Rs 6 lakh to Rs 9 lakh the tax rate is 10%
- From Rs 9 lakh to Rs 12 lakh the tax rate is 15%
- From Rs 12 lakh to Rs 15 lakh the tax rate is 20%
- Above Rs 15 lakh the tax rate is 30%
Per capita income has increased to Rs 1.97 lakh. At the same time, India’s economy has grown from 10th to 5th largest in the world in the last 9 years, Sitharaman said in the Union Budget speech.
India Budget 2023 is being presented at a time when the major advanced economies in the world are crippled by a slow down and are even staring at a possible recession. In this backdrop, the Economic Survey still expects India’s GDP to grow between the 6-6.8% range, maintaining its tag of being the fastest growing economy in the world. What also bodes well for the GDP growth prospects is that the Survey has said that India’s recovery from the shock of the Covid-19 pandemic is complete.
Indian Railways has received a capital outlay of Rs 2.40 lakh crore for the first time ever. This is the highest capital outlay for railways, Sitharaman said.
Finance Minister Nirmala Sitharaman announced a huge rise in capital expenditure. The Union Budget has hiked the outlay on capital expenditure by 33% to Rs 10 lakh crore. This would be 3.3% of GDP. The FM has also announced a massive increase in PM Awaas Yojana. In her Budget speech, Sithraman highlighted the continuation of the food security programme for another year and announced steps for Agri startups, fisheries and started a programme for primitive, vulnerable, tribal groups.
But, Sitharaman also has the crucial task of not just maintaining the fiscal deficit target of 6.4%, but also providing a credible road map to bring it down further in the coming years, closer to the FRBM target.