The central government today made the much-awaited mega announcement on increasing the earnings level up to which no income tax is payable: Rs 7 lakh a year from the 2023-24 financial year. It was Rs 5 lakh so far.
Under a new five-slab structure, those making even a rupee above it will have to pay tax — though they will get exemptions already available, such as life insurance premium and long-term mutual funds.
If you make more than Rs 7 lakh a year, there will be five tax slabs now, applicable on the taxable income calculated after all exemptions:
- Taxable income of Rs 0-3 lakh (after all exemptions) will be nil;
- Rs 3 lakh to 6 lakh will be taxed at 5 per cent;
- Income above Rs 6 lakh, up to Rs 9 lakh, will be taxed at 10 per cent;
- Above Rs 12 lakh, up to 15 lakh, will attract a 20-per-cent tax; and
- Income above Rs 15 lakh a year will be taxed at 30 per cent.
After listing out the new slabs, the minister also announced that the Old Tax Regime will only be available on request now, and what was known as the New Tax Regime so far will thus be considered the default regime.
She got to the tax bit near the very end of her 87-minute speech: “Now, I come to what everyone is waiting for — personal income tax. I have five major announcements to make in this regard. These primarily benefit our hard-working middle class.”
The first one was about rebate. “Currently, those with income up to Rs 5 lakh do not pay any income tax in both Old and New tax regimes. I propose to increase the rebate limit to Rs 7 lakh in the New tax regime,” she declared, as ruling alliance members thumped their desks.
“The second proposal relates to middle-class individuals. I had introduced, in the year 2020, the new personal income tax regime with six income slabs starting from Rs 2.5 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 added.
Earlier, taxable income — calculated after all usual exemptions — up to Rs 2.5 lakh attracted zero tax. Now that goes up to Rs 3 lakh.
She gave an example: “An individual with an annual income of Rs 9 lakh will be required to pay only Rs 45,000.” This was Rs 60,000 under the calculations applicable up to this financial year.
She also extended the benefit of Standard Deduction while calculating taxable income of the salaried class and pensioners, including family pensioners: “Each salaried person with an income of Rs 15.5 lakh or more will thus stand to benefit by Rs 52,500.”
She also brought down the highest applicable tax rate in India — from 42.74 per cent to 39. This was her fourth announcement on personal income tax.
“Lastly, the limit of Rs 3 lakh for tax exemption on leave encashment on retirement of non-government salaried employees was last fixed in the year 2002, when the highest basic pay in the government was Rs 30,000 per month. In line with the increase in government salaries, I am proposing to increase this limit to Rs 25 lakh,” she said.
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