FM said, while presenting the Union Budget, 2023 that we are also making the new income tax regime as the default tax regime. However, citizens will continue to have the option to avail the benefit of the old tax regime.
The amount of taxes you pay is likely to change ahead. Finance Minister Nirmala Sitharaman in her budget speech has made key major announcements for hard-working middle-class citizens who pay taxes. These are called new income tax slabs and the Centre has decided to make it a default tax regime. However, the old income tax slabs regime has not been abolished as well. Instead, taxpayers now have the option between the two regimes when paying for their taxes. But which one is better?
What is the new income tax slabs regime?
Firstly, FM cleared the air over the rebate on an income of ₹5 lakh which is free from taxes in both old and new tax regimes. This will change ahead!
Sitharaman has proposed to make the exemption limit to ₹7 lakh under the new tax regime — which means that up to this income amount a taxpayer will not be required to pay any tax.
Further, she proposed of change the tax structure in this regime by reducing the number of slabs to five and increasing the tax exemption limit to ₹3 lakh.
Hence, the new revised tax rates are:
– Income slab of ₹3 lakh: No tax levied
– Income of ₹3 lakh to ₹6 lakh: 5% tax rate
– Income of ₹6 lakh to ₹9 lakh: 10% tax rate
– Income of ₹9 lakh to ₹12 lakh: 15% tax rate
– Income of ₹12 lakh to ₹15 lakh: 20% tax rate
– Above ₹15 lakh income: 30%.
Additionally, the FM has proposed to reduce the surcharge rate from 37% to 25% on the highest tax rate in the country of 42.74% — which is among the highest in the world. With the reduction in the surcharge rate, the maximum rate would be 39%.
Also, FM proposed to extend the benefit of the standard deduction 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.
But FM also said, “we are also making the new income tax regime as the default tax regime. However, citizens will continue to have the option to avail the benefit of the old tax regime.”
In the previous new tax regime, no tax was levied on income to ₹2.5 lakh. Other tax rates were:
– Income ₹2.5 lakh to ₹5 lakh: 5% rate
– Income ₹5 lakh to ₹7.5 lakh: 10% rate
– Income ₹7.5 lakh to ₹10 lakh: 15% rate
– Income ₹10 lakh to ₹12.5 lakh: 20% rate
– Income of ₹12.5 lakh to ₹15 lakh: 25% rate
– Above ₹15 lakh income: 30% rate
What are old income tax slabs?
– Income up to ₹2.5 lakh: Exempted from tax
– Income of ₹2.5 lakh to ₹5 lakh: 5% tax rate
– Income of ₹ ₹5 lakh to ₹10 lakh: 20% tax rate
– Income of above ₹10 lakh: 30% tax rate
Which one is better?
For determining which option is better for an individual Central Board of Direct Taxes (“CBDT”) has released the Tax Calculator regarding the Old Regime vis-à-vis New Regime for Individual/ HUF/ AOP/ BOI/ Artificial Juridical Person (AJP) as per section 115BAC as proposed by Finance Bill, 2023. By feedings its income and deduction data in this calculator the tax payer can check the quantum of saving, if any under the new regime.
For Tax Calculator Click Here
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Frah Saeed is a law graduate specializing in the core field of indirect taxes and is the Co-founder of taxwallah.com. She has authored many publications on GST and is into full-time consultancy on GST to big corporates. She as a part of taxwallah.com heads a team comprising of Chartered Accountants and Advocates and plays a key role in our mission to disseminate GST knowledge to all.
