The new income tax regime could get some minor tweaks in the central government’s last full budget before the general elections in 2024. Here is all you need to know. By India Today Web Desk: The new income tax regime introduced by the central government over two years ago could get a fresh makeover in the upcoming Union Budget 2023 to attract more taxpayers. A majority of salaried taxpayers have steered clear of the optional tax regime despite lower tax rates as they are not eligible to opt for around 70 odd common exemptions under Section 80C, 80D, 80G and 80TTA — all of which are available under the old income tax regime. On the other hand, the old tax regime is still preferred by people with annual incomes above Rs 10 lakh as it not only offers all basic exemptions but also a standard deduction of Rs 50,000. While it is unlikely that the government would include any of the exemptions as part of the new income tax regime, it may slightly tweak it boost adoption among salaried taxpayers. The standard deduction of Rs 50,000 is only applicable to salaried taxpayers who opt for the old regime. Introducing the same under the new income tax regime could help it gain popularity among more salaried taxpayers as they do not get any other exemptions on expenses incurred.
Increase non-Taxable Income to Rs 5 Lakh From Rs 2.5 Lakh
Another small but important tweak that the government can introduce to the new income tax regime is to increase the basic exemption limit to Rs 5 lakh from the existing Rs 2.5 lakh. This is because salaried taxpayers with an income of Rs 5 lakh or above who opt for the new income tax regime will have to pay tax because they won’t be eligible for any exemptions or the rebate offered to taxpayers under Section 87A. Under the old income tax regime, people aged below 60 years with an annual income of over Rs 5 lakh up to 7.5 lakh could effectively bring down their taxable income to zero if they can bring it down below Rs 5 lakh. This is because they will be eligible for the rebate of Rs 12,500 that can be claimed under Section 87A. Tax experts feel that increasing the basic exemption limit to Rs 5 lakh will attract more taxpayers to the new regime and may help in further widening the tax base.
More Flexible Slabs, Lower Tax Rates
The government could increase the number of tax slabs under the new regime to further attract more people. At present, a five per cent tax is applicable on individuals earning above Rs 2.5 lakh up to Rs 5 lakh, while 10 per cent tax is applicable on income above Rs 5 lakh up to Rs 7.5 lakh. Individuals earning above Rs 7.5 lakh up to Rs 10 lakh have to pay 15 per cent tax. Among the higher tax brackets, people with income above Rs 10 lakh up to Rs 12.50 lakh per annum have to pay 20 per cent and a 25 per cent tax rate applies to incomes above Rs 12.50 lakh up to Rs 15 lakh. Meanwhile, a 30 per cent tax applies to incomes above 15 lakh. The government could further diversify the tax slabs and reduce the rates slightly under the new tax regime as individuals opting for it are not eligible for any exemptions. Such a move could provide a massive boost to the new tax regime and boost its popularity among taxpayers.