On 1st February 2023, everyone was glued to their screens as The Union budget 2023 presentation by Union finance minister Nirmala Sitharaman began at 11 am. One of the highlights of this year’s budget is the reforms to the tax regime, especially for salaried individuals.
She introduced these changes by stating, “ “It is proposed to increase the rebate for the resident individual under the new regime so that they do not pay tax if their total income is up to ₹7 lakhs. I propose to change the tax structure in this regime by reducing the number of slabs to five and increasing the tax exemption limit to ₹3 lakhs.
Slabs for income tax filing had not been altered since 2014 when the basic personal tax exemption limit was modified. In 2020, Sitharaman introduced a changed income tax regime in that year’s budget, however, this new regime remained optional for taxpayers.
What is Income Tax Slab?
An income tax slab is a set of income ranges that are taxed at different rates by the government. These rates are determined based on a taxpayer’s annual income. The government sets these tax slabs to ensure that individuals and businesses with different levels of income pay a fair share of taxes. The concept of tax slabs is used in most countries to structure the tax system in a way that is both simple and progressive. In India, the income tax system is progressive in nature
In a progressive tax system, individuals and businesses with higher incomes pay a larger percentage of their income in taxes compared to those with lower incomes. This helps to reduce income inequality and ensure that the burden of taxation is distributed fairly.
Tax regimes pre 2023 Union Budget
The following is the comparison of the two tax regimes before the 2023 Budget
|
Tax Slabs |
Old Tax Regime |
New Tax Regime after 2020 |
|
Less than 2.5 lakh |
No tax levied |
No tax levied  |
|
Between Rs 2.5 lakh to Rs 5 lakh |
5% tax levied |
5% tax levied |
|
Between Rs 5 lakh to Rs 7.5 lakh |
15% tax levied |
10% tax levied |
|
Between Rs 7.5 lakh to Rs 10 lakh |
20% tax levied |
15% tax levied |
|
Between Rs 10 lakh to Rs 12.5 lakh |
30% tax levied |
20% tax levied |
|
Between Rs 12.5 lakh to Rs 15 lakh |
25% tax levied |
|
|
More than Rs 15 lakh |
30% tax levied |
New Tax Structure Introduced in the Budget 2023
The following is a comparison of the old tax regime vs the new one propose in the Union Budget 2023 on 1st February.
|
Tax Slabs |
Old Tax Regime |
New Tax Regime after Budget 2023 |
| Between Rs 0 lakh to Rs 3 lakh | NIL | NIL |
| Between Rs 3 lakh to Rs 6 lakh | 5% | NIL (Income limit for rebate of income
tax increased from Rs 5 lakh to Rs 7 Lakh) |
| Between Rs 6 lakh to Rs 9 lakh | 10% | 10% |
| Between Rs 9 lakh to Rs 12 lakh | 15% | 15% |
| Between Rs 12 lakh to Rs 15 lakh | 20% | 20% |
| Above Rs 15 lakh | 30% | 30% |
Other features of the tax regime
With the Union Budget of 2023, the government has brought down the surcharge of the highest rate from 37% currently to 25%. It is also stated that a salaried person can choose the new tax regime in accordance with their convenience in every financial year.
Saraswathi Kasturirangan, Partner, Deloitte India also added that “Tax rates have been reduced under the new tax regime and the maximum marginal rate drops from 42.74% to 39%,”
If an individual only has a business income, they won’t be able to choose the tax regime according to their convenience every year. In the scenario that they choose the new regime, they will be allowed to switch back to the old structure only once.
According to Economic Times, “Individual having net taxable income up to Rs 5 lakh will not be required to pay any tax in both the regimes as rebate under Section 87A is available in both tax regimes. However, they will be required to file income tax return. Do keep in mind that under both the tax regimes the basic tax exemption limit is Rs 2.5 lakh for individuals below the age of 60 years during the financial year. However, for senior citizens (above 60 years but below 80 years) and super senior citizens (above 80 years of age) the basic tax exemption limit is Rs 3 lakh and Rs 5 lakh, respectively, in the old tax regime. In the new tax regime, the basic tax exemption limit is Rs 2.5 lakh irrespective of the age of the taxpayer.”
What did we learn?
