- Date : 03/03/2023
- Read: 3 mins
Under the new income tax regime announced in the Union Budget 2023, an income of up to Rs. 7 lakhs will be exempted from income tax. However, if you earn even a rupee more than Rs. 7 lakhs per annum, you will have to pay tax on all your income beyond Rs. 3 lakhs.
One of the highlights of the Union Budget 2023 was the changes made to the income tax regime. As per the announcements made by the Finance Minister of India, Mrs Nirmala Sitharaman, individuals opting for the new tax regime won’t have to pay income tax if their annual income doesn’t exceed Rs. 7 lakhs.
This is possible because the government has now allowed an income tax rebate of up to Rs. 25,000 under Section 87A of the Income Tax Act, 1961. This tax benefit is allowed only for taxpayers opting for the new tax regime. Earlier, the maximum income tax rebate allowed under Section 87A was Rs. 12,500.
Understanding the new income tax regime
While filing an income tax return, every individual has to specify whether they have chosen the new income tax regime or the old one. However, this choice isn’t as straightforward as it may seem.
Although the government has tried to make the new tax regime more attractive for salaried individuals by extending the income tax exemption limit to Rs. 7 lakhs (after the income tax rebate under Section 87A is counted), there remains a big catch. As per the announcements made by the finance minister, these benefits are available only for individuals with an annual income of Rs. 7 lakhs or less.
In the case of individuals with an annual income of more than Rs. 7 lakhs, they will have to pay income tax on their entire income beyond Rs. 3 lakhs per annum. It means that even if a taxpayer’s annual income exceeds Rs. 7 lakhs even by Re. 1, they may have to pay a minimum income tax of Rs. 25,000. Let’s understand how:
Calculation of income tax for salaried individuals earning beyond Rs. 7 lakhs
As per the income tax slab in the new tax regime, individuals with an annual income between Rs. 3 lakhs and Rs. 6 lakhs have to pay income tax at a 5% rate. Likewise, individuals with annual income between Rs. 6 lakhs and Rs. 9 lakhs have to pay tax at a 10% rate.
So, if the taxable income of an individual is more than Rs. 7 lakhs, they will have to pay income tax as per the following calculation:
5% of Rs. 3 lakhs + 10% of the amount exceeding Rs. 6 lakhs,
This comes to approximately Rs. 25,000 if the annual income exceeds Rs. 7 lakhs by even a rupee more.
Impact of the new income tax regime on taxpayers
After the new income tax regime is implemented, it will result in more tax savings for individuals with an annual income of up to Rs. 7 lakhs. However, those with an annual income of more than Rs. 7 lakhs may have to pay more tax if they opt for the new tax regime.
Disclaimer: This article is intended for general information purposes only and should not be construed as investment or legal advice. You should separately obtain independent advice when making decisions in these areas.