With the objective of benefitting the hard working middle class of the country, Union Minister for Finance and Corporate Affairs, Smt. Nirmala Sitaraman made five major announcements with respect to personal income tax while presenting the Union Budget 2023-24 in Parliament today. These announcements pertaining to rebate, change in tax structure, extension of benefit of standard deduction to the new tax regime, reduction of highest surcharge rate and extension of limit of tax exemption on leave encashment on retirement of non-government salaried employees will provide substantial benefits to the working middle class.
Providing relief to middle-class individuals, she proposed a change in the tax structure in the new personal income tax regime by reducing the number of slabs to five and increasing the tax exemption limit to Rs. 3 lakh. The new tax rates are:
All tax payers under the new system will feel a great deal of relief from this. The required payment for someone making Rs. 9 lakh will only be Rs. 45,000. This just represents 5% of his or her total salary. It represents a 25% discount from the current amount due, which is Rs. 60,000/-. Similar to the previous example, someone making Rs. 15 lakh would only have to pay Rs. 1.5 lakh, or 10% of their income, which represents a 20% reduction from their current liability of Rs. 1,87,500.
The third proposal of the budget provides major relief to the salaried class and the pensioners including family pensioners as the Finance Minister proposed to extend the benefit of standard deduction to the new tax regime. Each salaried person with an income of Rs. 15.5 lakh or more will thus stand to benefit by Rs. 52,500/-. At present, standard deduction of Rs. 50,000/- to salaried individuals and deduction from family pension up to Rs. 15,000/- is currently allowed only under the old regime.
Smt. Nirmala Sitaraman suggested to lower the highest surcharge rate in the new tax system for income beyond Rs. 2 crore from 37 percent to 25 percent as part of her fourth announcement about personal income tax. The maximum tax rate, which is currently 42.74 percent and one of the highest in the world, would drop to 39 percent as a result. For those in this income level who choose to remain under the old system, no change in surcharge is planned.
As part of the fifth announcement, the budget proposed extension of limit of tax exemption on leave encashment to Rs. 25 lakh on retirement of non-government salaried employees in line with the government salaried class. At present, the maximum amount which can be exempted is Rs. 3 lakh.
The budget proposed to make the new income tax regime as the default tax regime.