Post Budget 2023, salaried individuals and pensioners pay no tax on income upto Rs 7.5 lakh under the new tax regime. Budget 2023 proposes to increase rebate under Section 87A in such a way that taxpayers who earlier had to pay zero income on income up to Rs 5 lakh will now pay zero tax for income up to Rs 7 lakh. What it means that the quantum of maximum rebate under 87A rebate has been hiked from Rs 12500 to Rs 25000 under the new tax regime to make tax liability as Nil for the income tax payer with income up to Rs 7 lakh.
Additionally, the standard deduction of Rs 50,000 for the aforementioned group of taxpayers under the new tax system has been increased in Budget 2023. Only salaried individuals and retirees who choose the previous tax system were previously eligible for the standard deduction.
Individual taxpayers, such as salaried, pensioner, and family pensioners, will now be able to pay zero tax if their yearly income is greater than Rs 7.5 lakh as a result of the deduction and rebate in addition to the change in the income tax slab.
Zero tax at Rs 7.5 lakh income under new regime
|Income from salary||750000|
|Less Standard deduction||50000|
|Net Taxable Income||700000|
|Less 87A rebate||25000|
|Final tax payable||0|
Though government had kept the tax rate low in lower income tax brackets of the new tax regime however very few people opted for the new tax regime. This is because salaried people with income upto Rs 7.5 lakh had to pay zero tax under old regime if they were eligible for few popular deductions such as Rs 50000 standard deduction, Rs 1.5 lakh under section 80C and Rs 50,000 on NPS under section 80CCD(1B) or Rs 25000 to Rs 1 lakh under section 80D. So if you used Rs 2.5 lakh of deduction with various combination your net income came below Rs 5 lakh and with 87A rebate you ended up paying nil tax.
On the other hand, there was no exemption or deduction under the new tax system, thus persons had to pay taxes on income over Rs 5 lakh. For many salaried taxpayers with income up to Rs 7.5 lakh when taking combined with Rs 50,000 standard deduction, this increase from Rs 5 lakh to Rs 7 lakh income with additional 87A refund in the new tax system will make it attractive. However, non-salaried individuals will not have to pay any taxes on income up to Rs 7 lakh.
Moreover, filing taxes will be considerably easier if there aren’t many exemptions and deductions.
However, if you are expecting your income to go up in coming years and there is likelihood of utilising the deductions and exemptions under the old regime then you may have to go for old regime again. Do remember that if you are a salaried person and do not have any business income the current tax law allows you to change your tax regime every year.