10 announcements for middle-class: New income tax slabs; No tax up to Rs 7 lakh and more

Finance Minister Nirmala Sitharaman on 1st February, 2023 presented the Narendra Modi government’s last full budget in parliament before a general election due next year. Sitharaman is presenting her fifth full Budget after she took over as Finance Minister in July 2019. Sitharaman said the Budget for 2023-24 hopes to build on the foundation of the previous budget and blue print for India@100. This is the first Budget in Amrit Kaal, she said. Here are Income Tax highlights from FM Sitharaman’s speech:

1.New tax regime is now the default tax regime

New Tax regime will be the default tax system from now. The income taxpayers now have to opt for the old regime. Earlier, by default everyone was under the old tax regime.

2. New Slab rates under New Tax Regime

An individual with an income of ₹ 15 lacs will have to pay ₹ 1.5 lacs tax, down from ₹ 1.87 lacs under new tax structure. 

Annual Income New Tax Regime 
0-3 lacs0%
3-6 lacs5%
6-9 lacs10%
9-12 lacs 15%
12-15 lacs20%
Above 15 lacs 30%

An individual with an annual income of Rs 9 lakh will be required to pay only Rs 45,000/-. This is only 5 per cent of his or her income. It is a reduction of 25 per cent on what he or she is required to pay now, ie, Rs 60,000/-. Similarly, an individual with an income of Rs 15 lakh would be required to pay only Rs 1.5 lakh or 10 per cent of his or her income, a reduction of 20 per cent from the existing liability of Rs 1,87,500/.

3. Surcharge reduced from 37 % to 25%

Maximum tax, along with surcharge, will be 39%. The Current tax rate in country is 42.74%, among the highest in world. Budget23 proposes to reduce the highest surcharge rate from 37% to 25% in the new Tax regime. This will result in the reduction of the maximum tax rate to 39%.

4. Rebate upto Income of Rs 7 lakh

Currently, those with income upto 5 lakhs do not pay any income tax in both old and new regimes. Now, it is proposed to increase the rebate limit to 7 lakhs for the new tax regime.

5. Average processing time for income tax returns reduced

Finance Minister also announced that the average processing time for income tax returns reduced from 93 days to 16 days.

6. Standard Deduction under new Tax Regime

For the salaried class and the pensioners including family pensioners, FM extended the benefit of the 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.

7. Capital Gain Exemption

For better targeting of tax concessions and exemptions, FM proposed to cap deduction from capital gains on investment in residential house under sections 54 and 54F to Rs 10 crore. Another proposal is to limit income tax exemption from proceeds of insurance policies with very high value.

8. Limit of ₹ 3 lakh on leave encashment increased to 25 lakh

The limit of Rs 3 lakh for tax exemption on leave encashment on the retirement of non-government salaried employees was last fixed in the year 2002, when the highest basic pay in the government was Rs 30,000/-pm. In line with the increase in government salaries, it is proposed to increase this limit to Rs 25 lakh.

9. MSMEs and Professionals

Smt Sitharaman said that micro enterprises with turnover up to Rs 2 crore and certain professionals with turnover of up to Rs 50 lakh can avail the benefit of presumptive taxation. She proposed to provide enhanced limits of Rs 3 crore and Rs 75 lakh respectively, to the tax payers whose cash receipts are no more than 5%. She also proposed to allow deduction for expenditure incurred on payments made to MSMEs so as to support them in timely receipt of payments. She proposed to include payments made to such enterprises within the ambit of section 43B of the Micro, Small and Medium Enterprises Development Act. It will be allowed on accrual basis only if the payment is within the time mandated under the Act.

10. Other Announcements

  • Extension of period of tax benefits to funds relocating to IFSC, GIFT City till 31.03.2025;
  • Decriminalisation under section 276A of the Income Tax Act
  • Allowing carry forward of losses on strategic disinvestment including that of IDBI Bank
  • Providing EEE status to Agniveer Fund.

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