- Date : 17/02/2023
- Read: 3 mins
The changes under the new tax regime include a reduction in slabs from 6 to 5, a higher basic exemption limit of Rs. 3 lakhs, a standard deduction of Rs. 50,000, a rebate up to a total income of Rs. 7 lakhs and a reduction in the surcharge from 37% to 25% for high-income earners.
In Budget 2020, the Finance Minister introduced the new tax regime. The taxpayer had the option to choose between the old and new tax regimes. While the old tax regime had many deductions and exemptions, the new tax regime had hardly any deductions. But, the new tax regime was simple and straightforward. However, not many people opted for the new tax regime. In Budget 2023, the Finance Minister has proposed some benefits under the new tax regime to make it more appealing to the taxpayers. In this article, we will discuss the major announcements in Budget 2023 related to the new tax regime, such as a reduction in the number of tax slabs, an increase in the basic exemption limit, the introduction of the standard deduction, an increase in rebate limit, and a reduction in the peak tax rate.
Budget 2023: Major announcement related to the new tax regime
1) Reduction in income slabs
The Finance Minister has proposed to reduce the number of income slabs from the earlier 6 to 5. The new tax slabs are as follows.
The reduction in the income slabs has led to the further simplification of the new tax regime, making it easy to understand and follow for the taxpayer.
Also Read: Union Budget: Key Highlights: 2023-24
2) Increase in basic exemption limit
The basic exemption limit has been raised from the earlier Rs. 2,50,000 to Rs. 3,00,000. The taxpayer will be able to save 5% on Rs. 50,000, resulting in a net tax saving of Rs. 2,500.
3) Introduction of the standard deduction
Salaried individuals will be able to avail of a standard deduction of Rs. 50,000 from their taxable income. Earlier, the standard deduction was allowed only under the old tax regime.
4) Increase in rebate limit
Taxpayers will be able to avail of a rebate if their total taxable income is Rs. 7 lakhs or less. Earlier, the rebate was available on a total taxable income of up to Rs. 5 lakhs. Taxpayers were able to save net taxes of up to Rs. 12,500 earlier. With the increase in the rebate limit, taxpayers will now be able to get a net tax benefit of up to Rs. 25,000.
Also Read: What Are The Special Income Tax Benefits For Women?
5) Reduction in the peak slab rate
Earlier, individuals earning an annual income of more than Rs. 5 crores had to pay a surcharge of 37%. It resulted in a peak tax rate of 42.74%. The Finance Minister has proposed to reduce the surcharge from 37% to 25%. The reduction in surcharge will bring down the peak tax rate from 42.74% to 39%, resulting in a decent amount of tax savings.
The Finance Minister also announced that the new tax regime will be the default regime. If any individual wants to file returns under the old tax regime, they will have to choose that option and then proceed ahead. By announcing most of the benefits of the new tax regime, it seems the government wants taxpayers to shift to it so that it can phase out the old tax regime.
