Budget 2023: Big Income Tax Relief Under New Regime

In her Budget speech, finance minister Nirmala Sitharaman proposed an overhaul of the personal income tax slabs via the Finance Bill, 2023.

Under the extant rules, individual income tax is calculated either as per the Old Tax Regime or the new tax regime. The latter, introduced in Budget 2020 in a bid to simply the tax filing experience, is a flat rate.

Before the changes announced today, the new tax regime has seven tax slabs, under which income progressively attracts a higher tax rate. The first Rs 2.5 lakh is not taxable. Every additional Rs 2.5 lakh attracts a higher rate, starting at 5% and rising by 5 percentage points. All income above Rs 15 lakh is taxed at 30%.

So far, the New Tax Regime has not found many takers primarily because it removed most exemptions and deductions, including the standard deduction of Rs 50,000 and the exemption of house rent allowance. It does, however, allow for a deduction of up to Rs 50,000 towards contributions to the National Pension Scheme.

Under the old tax regime, there are four slabs:

• Upto Rs 2.5 lakh- NIL

• Rs 2.5 lakh- Rs 5 lakh- 5%

• Rs 5 lakh-Rs 10 lakh- 20% tax

• Above Rs 30 lakh- 30%

As things stand, a taxpayer can potentially reduce their taxable income dramatically through deductions and exemptions. The most popular deduction of Rs 1.5 lakh is allowed under Section 80C, for investments in a variety of instruments.

Further, expenses in the form of premiums on health insurance policies, interest on home loans and student loans and donations to charitable organisations are also deductible from taxable income.