Union Budget 2023- Expectation from New Tax Regime

In the upcoming Union Budget 2023, the central government is considering lowering rates under the new income tax regime. As part of the plan, the government may revise tax slabs to make the optional tax regime more appealing.

For the upcoming Union Budget 2023-24 (FY24), the Ministry conducted a review to identify ways to increase the scheme's adoption. Fewer than half a million taxpayers chose the new regime out of 75.2 million who filed income tax returns for the current fiscal year.

The new income tax system provides a range of lower tax rates, with the highest rate of 30% applied to earnings exceeding Rs 15 lakh. In contrast, the traditional exemption-based system has three tax brackets (5%, 20%, and 30%), with the highest rate imposed on incomes exceeding Rs 10 lakh.

Officials are currently assessing the new income tax regime in order to determine how to increase its adoption. One proposal under consideration is to raise the taxation threshold from Rs 2.5 lakh or to adjust the tax brackets to reduce the overall tax burden.

According to tax experts, many individual taxpayers' effective tax liability under the old tax regime is lower after claiming all deductions, which is why many have not switched to the new system. They propose raising tax slab rates to encourage people to choose the simplified system and eventually eliminate tax deductions.This can complicate the overall tax system and increase the administrative burden on employers, employees, and the tax department.