The central government today made the much-awaited big announcement of an increase in the level of income without paying income tax: Rs 7 lakh a year from the fiscal year 2023-24. It is Rs 5 lakh so far.
Under the new five-pound structure, those who earn even a rupee on it will have to pay tax.
For them, income from 0-3 lakh Rs will be tax free; then on:
- The part of income from Rs 3 lakh and 6 lakh will be taxed at 5%;
- 6 lakh to 9 lakh Rs, at 10%;
- 9 lakh to 12 lakh, 15%;
- Over Rs 12 lakh, up to Rs 15 lakh, will be taxed at 20%; and
- The portion of their income above Rs 15 lakh will be taxed at 30%.
After listing the new tables, the minister also announced that the old Tax Regime – which had some exemptions for insurance premiums, mutual funds and others – would be made available only on request now and the system is called ‘New Tax Mode’ hence will be treated as the default mode.
In contrast to the Old mode, the New mode, introduced in 2020, does not have any provision for an exemption.
However, she added a warning about it: Now, even under the New Regime, salaried workers earning Rs 15.5 lakh or more will receive a Standard Deduction of Rs 52,500 when calculating their taxable income.
Ms. Sitharaman addressed the tax issue near the end of her 87-minute speech: “Now, I come to what everyone has been waiting for – personal income tax. I have five key announcements to make. These announcements are primarily beneficial to our predicament – the working middle class.”
The first is about discounts. “Currently, people earning up to Rs 50,000 don’t have to pay any income tax in both the old and new tax regime. I propose to increase the refund limit to Rs 70,000 under the new tax regime. “, she announced as a ruling coalition member banged their table.
“The second proposal concerns middle-class individuals. I have introduced a new personal income tax regime in 2020 with six tables of income starting at Rs 2,500,000. I propose instead change the tax structure in this scheme by reducing the number of plates to five and increasing the duty-free limit to Rs 3 lakh,” she added.
Previously, taxable income – calculated after all the usual exemptions – up to Rs 2,500,000 was not taxed. Now that figure goes up to Rs 3 lakh.
She gives an example: “An individual with an annual income of Rs 9 lakh will only have to pay Rs 45,000.” This is Rs 60,000 according to the calculations applicable up to this financial year.
She also extended the benefits of the Standard Deduction while calculating the taxable income of the salaried class and retirees, including family retirees, under the new Scheme: “Each person salaried employees with income of Rs 15.5 lakh or more will benefit from Rs 52,500.”
She also reduced the highest applicable tax rate in India – from 42.74% to 39. This is her fourth announcement on personal income tax.
“Finally, the limit of Rs 3 lakh on tax exemption for paid leave in retirement of non-government salaried employees was last fixed in 2002, when the highest base salary in government is Rs 30,000 per month. In line with the increase in government wages, I am proposing to increase this limit to Rs 25 lakh,” she said.