Income Tax Slab Revision: Currently, 7 income slabs are available under the new tax regime with the annual income up to Rs 2.5 lakh exempt from tax and individuals earning between Rs 2.5 lakh and Rs 5 lakh paying 5% tax.
People are eagerly awaiting the announcement related to Income Tax slab revision as the personal income tax slabs and rates have remained unchanged since 2017-18. The only change that was introduced in February 2020 was the ‘simplified Tax Regime’ with reduced tax rates but at the cost of foregoing some deductions and exemptions.
In the 2023-24 budget, the Union government is likely to enhance the income tax exemption limit from Rs 2.5 lakh to Rs 5 lakh, leading to more disposable income for individuals.
Currently, individuals have the choice of paying tax under the new slab with lower rates but without deductions or continue paying tax under the existing laws and claim applicable exemptions.
The different income slabs under the new tax regime are:
5% tax on income between Rs 2.5 lakh and Rs 5 lakh
10% tax on income between Rs 5 lakh and Rs 7.5 lakh
15% tax on income between Rs 7.5 lakh and Rs 10 lakh
20% tax on income between Rs 10 lakh and Rs 12.5 lakh
25% tax on income between Rs 12.5 lakh and Rs 15 lakh
30% tax on income above Rs 15 lakh
The Finance Minister, Nirmala Sitharaman, is expected to focus on the middle class with a rejig in the income tax exemption limit and standard deduction. Increasing the Section 80C deduction limit for investments in PPF, tax-saving mutual funds, national savings certificates, etc. is also widely anticipated.
The Budget may bring in a simpler income tax return form for assesses with only capital gains or dividend or interest income, along with simplification of the capital gains tax regime.
The government may phase out the old tax regime or increase the acceptance of the new tax regime.
The salaried class is expecting tweaks in the income-tax slabs to provide relief. The insurance sector is seeking an increase in the tax exemption limit under section 80C and 8CCC to Rs 2.5 lakh, no GST for protection plans, increase in the limit of section 80D to Rs 50,000 for those below 60 years, and tax-free pension proceeds for insurance policyholders.
The new income tax regime introduced two years ago with lower tax rates has not been opted for by many taxpayers. The 2023-24 budget may see a hike in the basic tax exemption limit from Rs 2.5 lakh to Rs 5 lakh and a rationalization of the income tax rates.
According to Sudhir Kapadia, Partner at EY India Tax & Regulatory Services, the Budget 2023 is an opportunity for the government to bring reforms in the personal income tax space, with the highest income tax rate kicking in from Rs 20 lakh limit instead of Rs 10 lakh currently.