If you are a salaried employee in India, you might have heard the good news that from the next financial year (2023-24), you will not have to pay any income tax if your taxable salary is up to seven lakhs. This is a significant relief for millions of taxpayers who fall in the lower income brackets. But how did this happen and what are the implications of this tax free change? Let’s find out.
The Union Budget 2023-24, presented by Finance Minister Nirmala Sitharaman on 28th February 2023, announced a major overhaul of the income tax slabs and rates for individuals. The new tax regime has simplified the tax structure and reduced the tax burden for most taxpayers.
The new tax slabs and rates are as follows:
- Up to Rs. 7 lakh: Nil (Tax Free)
- 7 lakh to Rs. 10 lakh: 10%
- 10 lakh to Rs. 15 lakh: 20%
- 15 lakh and above: 30%
The new tax regime also offers an option to taxpayers to continue with the old tax regime, which has more deductions and exemptions, but higher tax rates.
The old tax slabs and rates are as follows:
- Up to Rs. 2.5 lakh: Nil (Tax Free)
- 2.5 lakh to Rs. 5 lakh: 5%
- 5 lakh to Rs. 10 lakh: 20%
- 10 lakh and above: 30%
The Finance Minister said that the new tax regime is aimed at simplifying the tax system and providing more money in the hands of taxpayers, especially the middle class and the lower income groups. She also said that the new tax regime will boost consumption and investment in the economy, which is recovering from the impact of the Covid-19 pandemic.
The new tax regime has some advantages and disadvantages for taxpayers
The advantages are:
- It reduces the tax liability for most taxpayers, especially those earning up to Rs. 7 lakh per annum.
- It eliminates the need to file various forms and documents to claim deductions and exemptions under various sections of the Income Tax Act.
- It reduces the compliance burden and saves time and money for taxpayers.
- It increases the transparency and efficiency of the tax system.
The disadvantages are:
- It removes many deductions and exemptions that were available under the old tax regime, such as standard deduction, house rent allowance, leave travel allowance, interest on housing loan, etc.
- It does not provide any relief for senior citizens and super senior citizens, who have higher exemption limits under the old tax regime.
- It does not take into account the inflation and cost of living in different regions of the country.
- It may not be beneficial for taxpayers who have high savings and investments that qualify for deductions under various sections of the Income Tax Act.
Therefore, taxpayers should carefully evaluate their income sources, expenses, savings, investments, and tax liability before opting for either of the two tax regimes. They should also consult a tax expert or use a tax calculator to compare the benefits and drawbacks of both regimes.
The new tax regime is expected to benefit about 75% of the individual taxpayers in India, according to the government estimates. It is also expected to increase the tax base and revenue collection for the government. However, it may also have some implications for the fiscal deficit and social welfare schemes that depend on tax revenues.
The new tax regime is a bold and progressive move by the government to simplify and rationalize the income tax system in India. It is a welcome step for millions of taxpayers who will enjoy more disposable income and less hassle in filing their tax returns. However, it is also important to understand its pros and cons before making a choice between the two regimes.