Maximizing Your Savings: 5 Income Tax Changes in Budget 2023. Explore the latest updates to the income tax system in India and learn how to maximize your savings with the 5 key changes announced in Budget 2023. From increased tax rebates to revised income tax slabs, this comprehensive guide will help you understand the impact of the new regime on your finances and make informed decisions for a financially secure future.
- Tax rebate limit raised to ₹7 lakh: The Union Finance Minister raised the rebate limit under section 87A of the new income tax regime to ₹7 lakh, up from ₹5 lakh.
- Changes in Income Tax slabs: The new tax regime has reduced the number of income tax slabs from six to five. The new income tax slabs are 0-3 lakh (nil), 3-6 lakh (5%), 6-9 lakh (10%), 9-12 lakh (15%), 12-15 lakh (20%), and above 15 lakh (30%).
- New Income Tax regime to be default regime: The government has made the new tax regime the default one and will promote it actively. The basic exemption limit has been increased to ₹3 lakh from ₹2.5 lakh and taxpayers earning up to ₹7 lakh will not have to pay taxes, compared to the current limit of ₹5 lakh.
- Annual income of ₹9 lakh will require only ₹45,000 in tax: An individual with an annual income of ₹9 lakh will be required to pay only ₹45,000 in taxes, based on the new tax regime.
- Maximum tax, including surcharge, reduced to 39%: The maximum tax rate, along with the surcharge, will be reduced to 39% under the new tax regime, down from the current rate of 42.74%. The Budget proposes to reduce the highest surcharge rate from 37% to 25%.
Comparing Old Tax Regime Vs New Tax Regime
Old Tax Regime:
- Tax rebate limit was ₹5 lakh under section 87A.
- Six income tax slabs: 0-2.5 lakh (nil), 2.5-5 lakh (5%), 5-10 lakh (20%), 10-20 lakh (30%), 20-50 lakh (30%), 50 lakh and above (30%)
- The old tax regime was an optional choice for taxpayers.
- The maximum marginal rate was 42.74% including the surcharge.
New Tax Regime:
- The tax rebate limit has been raised to ₹7 lahks under section 87A.
- Five income tax slabs: 0-3 lakh (nil), 3-6 lakh (5%), 6-9 lakh (10%), 9-12 lakh (15%), 12-15 lakh (20%), 15 lacks and above (30%)
- The new tax regime will be the default tax regime.
- The standard deduction for taxable income exceeding ₹15.5 lacks is ₹52,500.
- The maximum marginal rate has been reduced to 39% including the surcharge, compared to 42.74% in the old regime.
- The average processing time for income tax returns has been reduced from 93 days to 16 days.
Pros ( Advantages ) & Cons ( Disadvantages ) Of NEW TAX REGIME
Pros of New Tax Regime:
- Increased Tax Rebate: The new tax regime has increased the tax rebate limit to ₹7 lakhs, which means individuals with an annual income of ₹7 lakhs or less are exempt from paying taxes.
- Simplified Tax Slabs: The new tax regime has reduced the number of income tax slabs from six to five, making it easier to understand and calculate taxes.
- Reduced Tax Rates: Tax rates under the new regime have been reduced, resulting in lower taxes for individual taxpayers. The maximum marginal tax rate has dropped from 42.74% to 39%.
- Default Tax Regime: The new tax regime will now be the default tax regime, which the government is actively promoting.
- Faster Processing of Returns: The average processing time for income tax returns has been reduced from 93 days to 16 days, which makes the tax filing process more efficient.
Cons of New Tax Regime:
- Limited Tax Deductions: The new tax regime has limited tax deductions compared to the old tax regime, which may result in higher taxes for some taxpayers.
- Higher Taxes for High-Income Earners: The new tax regime has a higher tax rate for individuals with an annual income of ₹15 lakhs or more.
- No Tax Benefit for Higher Tax Bracket: Under the new tax regime, individuals with an annual income of ₹15 lakhs or more do not have the option to claim tax benefits that are available under the old tax regime.
- Lack of Flexibility: The new tax regime is less flexible than the old tax regime as individuals do not have the option to choose between the two regimes. The new regime will be the default regime and individuals will not be able to switch back to the old regime.
- May Result in Higher Taxes for Some Taxpayers: The new tax regime may result in higher taxes for some taxpayers, especially those who have a high annual income and have been claiming tax deductions under the old tax regime.