Budget 2023 Relating to Individual Income Tax
Author: Shaik Fazal Ahmed
Email id: fazal@simplybiz.in
Finance Minister has unveiled most awaited government’s last full year budget before elections on 1st day of February 2023.
Here are some key Individual Income Tax related highlights:
1.Old vs New Tax Regime:
In Budget 2020, a new provision was inserted giving Individuals and HUFs an option to choose between Actual Tax Rates (Old Tax Regime) and New Concessional Tax Rates (New Tax Regime). In New Tax Regime, taxpayer has to forego major exemptions and deductions that are available in Old Tax Regime.
In Budget 2023, concessions are granted only under New Tax Regime and no amendments are proposed for tax rates under Old Tax Regime.
- New Tax Regime is made applicable to AOP, BOI and Artificial Judicial Person (AJP).
- New Tax Regime is the default tax regime which means new system of taxation is considered for collection of Tax. However, the choice to be in Old Tax Regime is still available for taxpayers.
- The Basic exemption limit is increased to INR 3,00,000/- from INR 2,50,000/- under New Tax Regime.
- The highest tax rate of 30% is continued on Income above INR 15,00,000/-.
- Under New Tax Regime, highest rate of surcharge is reduced to 25% on income above INR 5 Crores from 37%.
- The Tax Rebate u/s 87A now increased to INR 7,00,000/- from INR 5,00,000/- for taxpayers opting New Tax Regime.
- Standard Deduction of INR 50,000/- for Salaries and Pensioners is now extended to New Tax Regime.
- Major Deductions and Exemptions NOT claimable under New Tax Regime:
- Chapter VI-A Deductions (Investment, Insurance Premium, Medical Insurance, Interest on Education Loan etc.,)
- Professional Tax & Entertainment Allowances
- House Rent Allowance (HRA) & Leave Travel Allowance (LTA)
- Interest on Housing Loan u/s 24 on self-occupied property
- Major Deductions and Exemptions claimable under New Tax Regime:
- Interest on Housing Loan u/s 24 on Let out property.
- Deduction for employer’s contribution to NPS account.
- Exemptions on voluntary retirement, gratuity and leave encashment.
Income Tax Slab Rates under Old Regime and New Regime:
| Old Regime | New Regime | ||
| Income slabs (Rs) | Income Tax Rate | Income slabs (Rs) | Income Tax Rate |
| Up to 2.5 Lakh | 0% | Up to 3 Lakhs | 0% |
| 2.5-5 Lakh | 5% | 3 to 6 Lakhs | 5% |
| 5-7.5 Lakh | 10% | 6 to 9 Lakhs | 10% |
| 7.5-10 Lakh | 15% | 9 to 12 Lakhs | 15% |
| 10-12.5 Lakh | 20% | 12 to 15 Lakhs | 20% |
| 12.5-15 Lakh | 25% | Above 15 Lakhs | 30% |
| Above 15 Lakh | 30% | ||
Now, we will try to understand which Tax Regime is beneficial for Taxpayers in different scenarios.
S.N | Taxable Income | Standard Deduction | Chapter VI-A Deduction | Net Taxable Income | Old Regime | New Regime | Tax Savings under New Regime |
Tax Payable | Tax Payable | ||||||
1 | 5,00,000 | 50,000 | – | 4,50,000 | – | – | – |
2 | 7,50,000 | 50,000 | 1,50,000 | 5,50,000 | 22,500 | – | 22,500 |
3 | 7,50,000 | 50,000 | – | 7,00,000 | 52,500 | – | 52,500 |
4 | 10,00,000 | 50,000 | 1,50,000 | 8,00,000 | 72,500 | 52,500 | 20,000 |
5 | 10,00,000 | 50,000 | – | 9,50,000 | 1,02,000 | 52,500 | 49,500 |
6 | 12,50,000 | 50,000 | 1,50,000 | 10,50,000 | 1,27,500 | 90,000 | 37,500 |
7 | 12,50,000 | 50,000 | – | 12,00,000 | 1,72,500 | 90,000 | 82,500 |
8 | 15,50,000 | 50,000 | 1,50,000 | 13,50,000 | 2,17,500 | 1,50,000 | 67,500 |
9 | 15,50,000 | 50,000 | – | 15,00,000 | 2,62,500 | 1,50,000 | 1,12,500 |
Note: We have only considered chapter VI-A deductions and not considered other deductions or exemptions in our calculation.
2. Presumptive Taxation Scheme u/s 44AD & 44ADA
To give relief to small taxpayers from maintaining of books of accounts, Income Tax Act has framed presumptive method of taxation. If a taxpayer is opting this scheme, income is computed on presumptive basis at a rate of 8% of the turnover of the business and 50% of the turnover of the profession.
In Budget 2023, threshold limits for presumptive taxation scheme for any business except the business of plying, hiring or leasing goods carriage is increased to INR 3 Crores from INR 2 Crores and threshold limits for certain professions is increased to INR 75 Lakh from INR 50 Lakh if their cash receipts during the fiscal year is less than 5% of total turnover.
3. Capital Gains
- There is no change in Capital gain tax.
- Under Sec 54 & 54F of Income Tax Act, an individual or HUF selling a c. residential property or any other long-term asset other that residential property can avail a tax exemption from capital gains if the said capital gains are invested in purchase/construction of residential property to a maximum of INR 10 crores.
4.Deductions & Exemptions
- Maturity amount from Life Insurance policies other than Unit Linked Insurance Policies (ULIP) is taxed if the aggregate annual premium exceeds INR 5 Lakh. However, no tax will be charged on amount received on the death of the Insured person.
5.TDS
- TDS rates of EPF withdrawal of taxable component is reduced to 20%.
Budget 2023 aims to simplify and reduce compliance burden for Individual Taxpayers by revising New Tax Regime.
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