Narendra Modi Sarkar on Wednesday set the tone for the 2024 Lok Sabha elections as it gave the salaried class cause to cheer by announcing an income tax exemption – with the disclaimer that it only applied to those who opted for the new tax regime.
In what is seen as a push for the salaried taxpayer to move to the new tax regime in which no exemptions are provided for investments, the Finance Minister in her budget for 2023-24 allowed a standard deduction of Rs 50,000 under the new regime .
For the “hard-working middle class,” Finance Minister Nirmala Sitharaman announced discount, saying, “Currently, those with incomes up to Rs 5 lakh do not pay income tax in both old and new tax regimes. I propose to increase the rebate limit to Rs 7 lakh in the new tax regime. Thus, persons in the new tax regime with an income of up to Rs 7 lakh will not have to pay any tax.”
The finance minister also changed the new personal income tax regime from six to five plates and increased the tax exemption limit to Rs 3 lakh. The new tax rates are:
Rs 0-3 lakh – Nil
Rs 3-6 lakh – 5 per cent
Rs 6-9 lakh – 10 per cent
Rs 9-12 lakh – 15 per cent
Rs 12-15 lakh – 20 per cent
Above Rs 15 lakh – 30 per cent
Explaining the benefit, Sitharaman said, “This will bring great relief to all taxpayers in the new regime. A person with an annual income of Rs 9 lakh has to pay only Rs 45,000. This is only 5 percent of his or her income. It is a 25 percent discount from what he or she now has to pay, which is Rs 60,000. Similarly, a person with an income of Rs 15 lakh would have 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.”
The FM’s third proposal concerned the salaried class and pensioners, including family pensioners, for whom it extended benefits from standard deduction to the new tax regime. “Each salaried person with an income of Rs 15.5 lakh or more will thus benefit from Rs 52,500,” she said.
She then moved on to the fourth notice in personal income tax relating to the highest tax rate of 42.74 percent. “This is one of the highest in the world. I propose to lower the highest surcharge percentage in the new tax regime from 37 percent to 25 percent. This would result in a reduction of the maximum tax rate to 39 percent.”
Finally, the limit of Rs 3 lakh is for tax exemption on leave redemption upon retirement of non-government salaried workers was last recorded in the year 2002 when the highest basic salary in the government was Rs 30,000 per month. “In line with the increase in government salaries, I am proposing to increase this limit to Rs 25 lakh. We are also making the new income tax regime the default tax regime. However, citizens will continue to have the option of using the old tax regime.”
The government introduced an optional income tax regime in the 2020-21 budget, requiring individuals and Hindu undivided families (HUFs) to be taxed at lower rates if they could not avail of itemized exemptions and deductions such as Housing Benefit (HRA), interest on home loans, investments made under Section 80C, 80D and 80CCD. Under this, total income up to Rs 2.5 lakh was exempt from tax.
Currently 5 per cent tax is levied on total income between Rs 2.5 lakh and Rs 5 lakh, 10 per cent on Rs 5 lakh to Rs 7.5 lakh, 15 per cent on Rs 7.5 lakh to Rs 10 lakh, 20 per cent on Rs 10 lakh to Rs 12.5 lakh, 25 per cent on Rs 12.5 lakh to Rs 15 lakh, and 30 per cent above Rs 15 lakh.
However, the scheme has not gained a foothold, as it has led to a higher tax burden in a number of cases. With effect from April 1, these plates will be adjusted in accordance with the announcement of the Budget.
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