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Budget 2023: Key Announcements By FM Nirmala Sitharaman In Personal Income Tax Category
Nirmala Sitharaman, the union finance minister, in her last budget speech, announced five significant changes to personal income tax on Wednesday, in the parliament. These five major changes will be a big relief to middle-class and salaried individuals as it is related directly to the income of common people. Among the five personal income tax changes, the income tax regime is the major one. According to Sitharaman, the new income tax regime will now be the default tax system. However, citizens will still be able to choose to benefit from the previous tax system.
1. Rebate Limit
The first announced under the personal income category announced by the FM was an income tax rebate. Income of up to Rs 5 lakh is exempt from income tax under both the old and new tax regimes. In the new tax regime, Sitharaman recommended raising the rebate maximum to Rs 7 lakh. "I propose to increase the rebate limit to Rs 7 lakh in the new tax regime. Thus, persons in the new tax regime, with income up to Rs 7 lakh will not have to pay any tax," she said.
2. Income Tax Regime
In 2020, FM Sitharaman introduced a new personal tax regime with six income tax slabs starting at Rs 2.5 lakh. In the budget 2023 speech, she recommended reducing the number of tax brackets to five and raising the tax exemption ceiling to Rs 3 lakh. "I propose to change the tax structure in this regime by reducing the number of slabs to five and increasing the tax exemption limit to Rs 3 lakh," she said.
| Income | Income Tax |
|---|---|
| 0-Rs 3 lakh | Nil |
| Rs 3-6 lakh | 5.00% |
| Rs 6-9 lakh | 10.00% |
| Rs 9-12 lakh | 15.00% |
| Rs 12-15 lakh | 20.00% |
| Above Rs 15 lakh | 30.00% |
3. Standard Deduction
The third announcement is related to the salaried class and the pensioners including family pensioners. She advocated that the standard deduction benefit be extended to the new tax structure. "I propose to extend the benefit of standard deduction to the new tax regime. Each salaried person with an income of Rs 15.5 lakh or more will thus stand to benefit by Rs 52,500," she said.
4. Tax Reduction
FM Sitharaman in her fourth announcement on personal income tax made regarding the highest tax rate, which is 42.74 per cent. Sitharaman proposed to reduce the highest surcharge rate from 37% to 25% in the new tax regime. She said the proposed change would result in the reduction of the maximum tax rate to 39 per cent.
5. Tax Exemption
The first major announced under the personal income tax category is related to the limit on tax exemption on leave encashment of non-government salaried employees. The limit of Rs 3 lakh was introduced in 2002, under the Atal Bihari Vajpayee administration, when the highest monthly basic pay was Rs 30,000. FM Sitharman suggested raising this set limit to Rs. 25 lakh in order to keep up with increases in government pay.
