Income Tax Rule 2023: Did New Slabs Confuse You Regarding ZERO Tax on Income up to Rs 7 Lakh? Check This Tax Computation
In order to address the confusion amongst people on the proposed slab rates of the new tax regime and also how Rs 7 lakhs is going to be tax free, here is the reference point that needs to be understood.
New Delhi: Finance Minister Nirmala Sitharaman in her Budget 2023 has announced an enhanced rebate limit in the new tax regime. The FM has raised the rebate limit in the new tax regime to Rs 7 lakh, thus meaning that individuals who earn up to this amount would not be subject to taxation under the new system or in other words they will have to pay 'nill' tax. The income tax structure in the new personal tax regime has also been modified by the FM by lowering the number of tax bands to five from the previous six while the tax exemption threshold has been hiked to Rs 3 lakh from previously Rs 2.5 lakh.
In the new tax system, the highest personal income tax surcharge rate for income beyond Rs. 2 crore has been decreased from 37% to 25%. As a result, the maximum personal income tax rate, which was formerly 42.74%, would decrease to 39%.
Experts believe that all tax payers under the new system will feel a great deal of relief from the announcement by the Finance Minister. It is in the same context that we tried to understand as to which tax regime is advantageous for the individual or salaried class tax payers.
The new tax regime is made as a default tax regime; however the taxpayers will have an option to shift to the old tax regime. Taxpayers who are not having business income can exercise this option every year of tax filing.
CA Dharmendra Chachan, Partner, Chachan & Lath LLP told Reema Sharma of Zee News, “The Finance Budget 2023 has provided a significant benefit to High Net-worth Individuals (HNIs) not opting the old tax regime by reducing the highest surcharge rate (which is charged over and above the normal income tax) from 37% to 25%. On the other hand, there is a big hole in the pocket of HNIs by way of limiting the deduction under section 54 and 54F for investing in residential house to Rs 10 crores only. This may result in increased tax pay out for individuals and Hindu Undivided Families having long-term capital gains.”.
He further added that in respect of remittance made overseas for any purpose other than education and medical treatment and travel packages taken for overseas travel, tax collection at source rate is now proposed to be 20% against 5% earlier, without any threshold limit.
“To mitigate difficulties being faced by the common man in post pandemic era including that due to rising inflation various reliefs have been extended. Important amendments introduced under new tax regime are revision of income-tax slabs from 6 to 5; increasing the basic exemption from Rs 2.5 lakh to Rs 3 lakh; allowing standard deduction of Rs 50,000 to salaried taxpayers, which was not available earlier under the new tax regime.Further, the taxpayer opting for new tax regime, will not be paying any taxes if the total income is Rs 7,00,000,” added CA Naresh Lath, Partner, Chachan & Lath LLP.
Meanwhile, the new income tax slab has created a lot of confusion among people, who are at wits ends in ascertaining, how the tax on income upto Rs 7 lakh will be Nill if the above tax rate slab comes into force.
Chachan explains the income tax computation with the the table mentioned below:
In order to address the confusion amongst people on the proposed slab rates of the new tax regime and also how Rs 7 lakhs is going to be tax free, here is the reference point that needs to be understood. For people earning upto Rs 3 lakh, there will be zero tax. For people earning between Rs 3-6 lakh, there is a 5 percent tax rate. For people earning between Rs 6-9 lakh, there is a 10 percent tax rate in the new tax regime.
Now, maintaining the above tax slab, if a taxpayer is going to file his/her ITR opting for the new tax regime, the taxpayer will still be eligible to be taxed under the tax slab as proposed under the new tax regime. However under the new tax regime, they will get Rebate under section 87A, thus meaning that for income upto Rs 7 lakh, there will be No Income Tax. Earlier the rebate was upto Rs 5 Lakh.