Union Budget 2023: New tax regime made attractive with rebate limit increase to Rs.7 lakhs.

Rebate limit hiked to Rs.7 lakhs under the new regime

Income rebate limit

The Finance Minister, Mrs Nirmala Sitharaman, made major announcements in the personal tax segment when she presented the Union Budget 2023. The changes were made particularly in the new tax regime, which made it all the more attractive for taxpayers. One of the most important changes was the income tax rebate limit hike.

The proposed change in rebate

Currently, both the old and new tax regimes allow tax rebates to individuals whose taxable income is up to Rs.5 lakhs. The rebate is allowed under Section 87A of the Income Tax Act, 1961, and it nullifies the tax payable. So, in short, for taxable incomes up to Rs.5 lakhs, there is no tax liability under both the old tax regime and the new one.

In the latest Union Budget 2023, this limit has been increased. The government has proposed a limit of Rs.7 lakhs for the rebate available under Section 87A. This limit will be available only under the new tax regime. Thus, per the current change, taxable income up to Rs.7 lakhs will attract no tax liability under the new tax regime.

Related - Check out the tax benefits available if your income is below Rs.5 lakhs

What is the new tax regime?

The new tax regime was introduced by the Finance Ministry back in the Union Budget 2020. It was an optional regime that allowed individuals to enjoy lower tax rates for higher income levels. However, the deductions and exemptions available under the old tax regime were not allowed under the new regime.

The tax rates under the new regime were as follows –

tax rates under the new regime

Other changes to the new regime

Besides increasing the rebate limit, the government has also changed the tax slab available under the new regime. The new slabs are as follows –

Other changes to the new regime

Per the new tax slab, taxable income up to Rs.3 lakhs will attract no tax liability and incomes between Rs.3 lakhs, and Rs.7 lakhs can claim a rebate on the tax liability to bring it down to zero. Moreover, the new regime has been made the default option unless the taxpayers choose otherwise.

The proposed changes aim to make the new tax regime more popular among taxpayers so that they have a higher disposable income.

Related - Know the difference between tax deduction, exemption and rebate

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