Union Funds 2023: New vs Outdated Tax Regime: See What Has Modified

New Delhi:

Finance Minister Nirmala Sitharaman has elevated the rebate restrict for particular person taxpayers from Rs 5 lakh to Rs 7 lakh a 12 months.

“..Presently, these with earnings as much as Rs 5 lakh don’t pay any earnings tax in each outdated and new tax regimes. I suggest to extend the rebate restrict to Rs 7 lakh within the new tax regime. Thus, individuals within the new tax regime, with earnings as much as Rs 7 lakh is not going to must pay any tax,” Ms Sitharaman stated whereas presenting Funds 2023 in parliament in the present day.

She additionally introduced new tax slabs and scrapped the outdated twin-structure system that was unboxed in 2020, which taxed residents underneath 25 per cent with out exemptions and 30 per cent with exemptions allowed.

The brand new slabs are:

Rs 0-3 lakh – no tax

Rs 3-6 lakh – taxed at 5 per cent

Rs 6-9 lakh – taxed at 10 per cent

Rs 9-12 lakh – taxed at 15 per cent

Rs 12-15 lakh- taxed at 20 per cent

Above Rs 15 lakh – taxed at 30 per cent

Distinction between outdated and new tax regime

“I had launched, within the 12 months 2020, the brand new private earnings tax regime with six earnings slabs ranging from Rs 2.5 lakh. I suggest to alter the tax construction on this regime by lowering the variety of slabs to 5 and growing the tax exemption restrict to Rs 3 lakh,” Ms Sitharaman stated.

In Funds 2020, the Finance Minister had given an choice to particular person taxpayers to both proceed within the outdated price, underneath which they might nonetheless declare tax exemption, or go for the lowered new price however with no scope for claiming exemptions.

The outdated tax regime had 30 per cent tax price for these whose earnings was Rs 15 lakh a 12 months, however they might declare exemptions.

Those that opted for the brand new regime first introduced in 2020 and whose earnings was over Rs 15 lakh have been taxed at 25 per cent, however they might not declare exemptions.

Under is an instance of how the brand new tax regime results in extra financial savings:

In case your wage is Rs 7 lakh a 12 months, then you do not have to pay any tax. Earlier, the rebate was Rs 5 lakh.

Now, as an example your wage is Rs 9 lakh a 12 months. Will probably be taxed by compartmenting the quantity into slabs. Accordingly:

A. 0-Rs 3 lakh: no tax (earlier, it was 0-Rs 2.5 lakh)

Steadiness: Rs 6 lakh to be taxed underneath two slabs i.e. Rs 3-6 lakh portion at 5 per cent and Rs 6-9 lakh portion at 10 per cent

B. Rs 3 lakh taxed at 5 per cent: Rs 15,000

Steadiness: Rs 3 lakh to be taxed underneath one slab i.e. Rs 6-9 lakh portion at 10 per cent

C. Rs 3 lakh taxed at 10 per cent: Rs 30,000

Whole tax on Rs 9 lakh (sum of A, B and C): Rs 45,000

Nonetheless, if tax on this Rs 9 lakh was calculated utilizing the outdated slabs (0-Rs 2.5 lakh exempted and Rs 5 lakh rebate), you’d have to pay at the very least Rs 60,000, which suggests the brand new slabs result in financial savings of some 25 per cent.