Major Changes to Income Tax in Union Budget 2023

Major Changes to Income Tax in Union Budget 2023

Nirmala Sitharaman, the Union Minister of Finance, unveiled several initiatives, with a focus on popularising the new tax regime by raising the exemption threshold from Rs. 5 lakh to Rs. 7 lakh. The previous tax system will still be in place but will no longer be the default system. In her Budget Address to Parliament on February 1, 2023, Union Minister of Finance Nirmala Sitharaman made several statements about personal income tax budget, with a focus mostly on the new tax regime.

Also read; Budget 2023 Key Highlights | Union Budget 2023

She announced five significant modifications to the personal income tax in total-

1. Tax Limit Increase Under New Regime:

As of right now, those with taxable incomes of up to Rs 7 lakh are exempt from paying any taxes under the new tax regime. This cap was formerly set at Rs. 5 lakh. A deduction of Rs 1.5 lakh under Section 80C and a standard deduction of Rs 50,000 allowed individuals with income up to Rs 5 lakh under the previous tax regime to receive benefits totaling up to Rs 7 lakh.

2. Tax Slabs:

She also disclosed new tax slabs under the new regime. These are listed below-

For incomes between 0 and 3 lakh, there would be no tax. This limitation, which was previously set at Rs 2.5 lakh, has now been raised to Rs 3 lakh.

Tax rates range from 5 percent for amounts up to Rs. 3-6 lakh to 10 percent for amounts up to Rs. 6-9 lakh. For amounts between Rs. 9 and 12 lakh, it is 15%, and between Rs. 12 and 15 lakh, it is 20%. It is 30% for incomes beyond Rs. 15 lakhs.

According to her, this would be a huge comfort for taxpayers under the new tax system. As a result, persons with taxable income of Rs 9 lakh would now pay Rs 45,000 in taxes as opposed to Rs 60,000 previously. This is merely 5% of the person's salary, which is a 25% decrease over what they are now expected to pay.

Similarly, a person earning a taxable salary of Rs 15 lakh will now only be required to pay a tax of Rs 1.5 lakh, or 10% of their income, as opposed to the current rate of Rs 1,87,500, a 20% decrease.

3. Benefits For The Salaried Class And Pensioners:

According to her, the Standard Deduction of Rs 50,000 for salaried individuals and the deduction from family pensions up to Rs 15,000—both of which are currently permitted only under the previous tax system—will now also be available under the new tax system.

Every salaried person who earns Rs. 15.5 lakhs or more will thus stand to gain by Rs. 52,500, she added.

According to the new system, it is also recommended to permit these two deductions, she stated.

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4. Tax Surcharge Reduction:

This budget also reduces the 42.74 percent top tax rate. According to the revised budget, the highest fee, which was formerly 37 percent, has been lowered to 25 percent. As a result, the top tax rate would drop from 42.74 percent to 39 percent.

The price hasn't been changed, though, for those who choose to go with the previous system.

Also, she stated that although the new tax system would be the default, taxpayers are free to stick with the previous one.

5] Tax Exemption on Leave Encashment: Finally, the non-government salaried employee limit of Rs. 3 lakh for tax exemption on leave encashment on retirement has been extended to Rs. 25 lakh. The last time this was fixed was in 2002, when the maximum monthly basic wage in the government was Rs. 30,000, according to her. She continued by saying that this was carried out in line with the rise in government salary.

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BY: Admin Tax4wealth

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