The Budget 2023 announcement on February 01, 2023, brought cheer to many income taxpayers seeking simplification in the tax assessment process and reducing the number of income slabs. The Union finance minister Nirmala Sitharaman said, “The government proposes to increase the income tax rebate limit from ₹5 lakh to ₹7 lakh in the new tax regime.”
While this relaxation in tax liability among the low and middle-income groups, many questions were posed on how taxpayers earning between ₹6 lakh and ₹9 lakh could be completely exempt from tax given current income tax slab rates.
The income tax rates under the new tax regime include
[table id=16 /]
Though taxpayers have the option to assess their income tax liability according to the rates mentioned in the old regime, the new income tax regime will be the default tax regime. With 5% and 10% rates being imposed on income in the range of ₹3-5 lakh and ₹6-9 lakh, respectively, taxpayers are wondering at the available exemptions and deductions that would allow scope for a complete exemption for those falling in this income group.
“Those earning up to ₹7 lakh need not pay taxes if they opt for the new regime. They can also consider investing in Section 80C options up to ₹1.5 lakh and claim ₹50,000 of the standard deduction. This way they’ll be neutral with respect to the tax regimes.”
Individuals who choose the new tax regime and have taxable income of up to ₹7 lakh will be eligible for a full tax rebate under Section 87A of the Income Tax Act, 1961.
Let’s see how the same is possible.
Under the new tax slab, your tax liability will be
Income up to ₹3 lakh: Nil
Income from ₹3 lakh to ₹5 lakh: 5% of ₹3,00,000 = ₹15000
Income from ₹6 lakh to ₹7 lakh: 10% of ₹1,00,000 = ₹10000
So, the total tax liability turns out to be ₹25,000
The revised limit under Section 87A of the Income Tax Act is applicable only when one calculates income tax under the new regime.
Read More: Union Budget 2023-24: Proposed Changes in GST Law
Taxpayers choosing the new tax regime can avail of the benefits of a full rebate on taxable income up to ₹7 lakh. The net result is “Zero Tax Liability”. However, taxpayers will be exempt from tax only when their gross taxable income is ₹7 lakh.