Union Budget Review | I-T proposals make new tax regime more attractive

The Union Budget got 2023-24 has proposed to make the new tax regime more attractive by increasing the rebate limit from Rs 5 lakh to Rs 7 lakh and easing the tax slabs. Furthermore, the presumptive taxation limit and leave encashment limit have been increased, and the surcharge on tax reduced to 25%.

These proposals are expected to reduce the burden on taxpayers and provide relief to small taxpayers. Let’s see them in detail.

Click here to calculate your tax under the new regime

New tax regime

Raising the rebate limit to Rs 7 lakh is expected to incentivise people to shift to the new tax regime and reduce their tax burden. The new tax slabs under the new tax regime are:

Rs 0-3 lakh: Nil,

Rs 3-6 lakh: 5 per cent,

Rs 6-9 lakh: 10 per cent,

Rs 9-12 lakh: 15 per cent,

Rs 12-15 lakh: 20 per cent and

Over Rs 15 lakh: 30 per cent.

Furthermore, a standard deduction of Rs 50,000 has been introduced in the new tax regime for salaried and pensioners.

The new tax regime is a simpler alternative, without claiming any investment-related deductions or exemptions, and is expected to be useful for individuals who are not in a position to invest and claim deductions.

Now, under the new tax regime, anyone with an income of up to 7 lacs can claim a rebate and is not liable to pay income tax.

The presumptive taxation limit under Sec 44AD & ADA has been enhanced to Rs 3 crore and Rs 75 lakh.

If you are in a specified business or profession, this section allows taxpayers to declare profits and gains at a prescribed rate without maintaining books of accounts. It applies to those with turnover/gross receipts up to Rs 2 crore and Rs 50 lakh in the case of a profession. Now, the said limit has enhanced to Rs 3 crore and Rs 75 lakh, respectively, if the amount or aggregate of amounts received during the financial year in cash should not exceed 5 per cent of the total turnover or gross receipts.

Leave encashment limit

Finance Minister has proposed to increase the tax exemption limit on leave encashment on the retirement of non-government salaried employees from ₹3 lakh to ₹25 lakh. This is to bring the limit in line with the increase in government salaries since the last time it was fixed in 2002. Leave encashment is taxable based on when it is received.

Surcharge on Tax reduced to 25%

In the new tax regime, the highest surcharge levied under personal income tax has been reduced from 37 per cent to 25 per cent. This would reduce the maximum tax rate on the highest income slab with income above Rs 2 crore from 42.74 per cent to 39 per cent.

Overall, the budget proposals in the Union budget are expected to benefit taxpayers by reducing their tax burden. The new tax regime becomes the default regime, however, individuals have the option to continue with the old regime. By increasing the rebate limit and easing the tax slabs, the new tax regime is expected to provide relief to taxpayers, while the presumptive taxation scheme is expected to provide relief to small taxpayers by easing compliance and promoting non-cash transactions.

(The writer is a practicing Chartered Accountant)