As India prepares to take its place among the top developing but largely self-reliant nations in the world, India’s income tax budget 2023 was presented by Finance Minister Nirmala Sitharaman on Feb 1, 2023. As a clear strategy to fortify the country's finances on its path to reaching a USD 5 trillion economic goal by 2024, and sustain this growth for the next few decades, the budget 2023 income tax regime had several modifications to its income tax slabs.
The new income tax slabs for FY 2023, can be summed up below. Of course, these modifications will also need smarter investments for longer terms, to have a balance of savings as well.
1) Changes In the Maximum Tax Rebate The most significant change that our FM proposed is a powerful fiscal change directed at the middle class, allowing more purchasing power and savings for them. The new tax regime has a modified structure which has reduced the number of income tax slabs from 6 to 5 and increased the tax exemption limit to Rs. 3 lakhs. The first slab would attract nil taxation for up to Rs. 3 lakhs income. The second slab would attract a 5% tax for Rs. 3-6 lakhs income. The third slab would be between Rs. 6-9 lakhs and would have 10% taxation, which would increase to 15% for income between Rs. 9-12 lakhs. The fifth slab would attract 20% taxation for incomes between 12- 15 lakhs, and incomes above 15 lakhs would continue to attract 30% taxation.
The FM also maintained that this would bring down the effective tax rate from 42.74%, which is currently the highest in the world, to a more reasonable 39%. The new tax regime also reduces the highest surcharge rate from 37% to 25%.
This change will give citizens with income up to Rs. 7 lakhs annually extra income, which they would be wise to invest in long terms schemes like Unit Linked Income Plans (ULIP) from IndiaFirst Life Insurance. Of course, the amount will be decided by the provisions for tax deductions under Section 10(10D) of the Income Tax Act and will apply as per the new tax regime, but clearly, buying ULIP will serve as a long-term investment, both for tax saving as well as future financial planning.
2) Tax Changes for Pensioners and Budget 2023 Income Tax Slabs for Senior Citizens
The new tax regime slabs extend several tax benefits to pensioners and senior citizens, primarily on their investment incomes or pensions. In addition, the new income tax slabs are also different for pensioners. For citizens between 60 and 80 years, the tax slabs and applied taxation is as follows:
- 0 to Rs 2.5 lakh: NIL
- Rs 2.5 to Rs 5 lakh: 5% above Rs 2.5 lakh
- Rs 5 lakh to Rs 7.5 lakh: Rs 12,500 + 10% above Rs 5 lakh
- Rs 7.5 lakh to Rs 10 lakh: Rs 37,500 + 15% above Rs 7.5 lakh
- Rs 10 lakh to Rs 12.5 lakh: Rs 75,000 + 20% above Rs 10 lakh
- Rs 12.5 lakh to Rs 15 lakh: Rs 1,25,000 + 25% above Rs 12.5 lakh
- Above Rs 15 lakh: Rs 1,87,500 + 30% above Rs 15 lakh
Rising inflation is anyway a challenge for senior persons with a stationery income, and the way to counter it is to invest in a Pension Plan. This will provide a steady income that has accumulated compounding benefits, with returns enhanced by progressive taxation. For instance, IndiaFirst Life Pension Plans provide tax benefits on the premiums you invest as well as the maturity of those, for a continued income after end of employment period, or retirement.
In addition, the new budget has increased the maximum permissible investment by senior citizens in the Senior Citizens' Savings Scheme (SCSS). The maximum limit ranges from Rs. 30 lakh to Rs.15 lakh. In the popular Post Office Monthly Income Scheme (POMIS), the investment limit has been raised to Rs. 9 lakh from Rs.4.5 lakh, for single account holders. Joint accounts have an investment limit of Rs.15 lakh with an interest of 7.1% per annum.
Another very interesting change in the new tax regime slabs is that pensioners and seniors above 75 years of age who depend on only pension and interest income, will no longer need to file IT returns.
3) Revisions To Presumptive Taxation Limits
The budget 2023 India has proposed raising presumptive taxation thresholds for small and micro enterprises under Sec 44AD, from Rs. 2 crores to Rs. 3 crores, and Sec 44ADA for some professionals from the earlier Rs. 50 lakhs to Rs. 75 lakhs. However, this is ‘only if their cash receipts during the fiscal year are less than 5% of total gross receipts or turnover’, and subject to a condition that 95% of the receipts must be through online channels, the budget maintains.
4) Updates To Other Direct Taxes
There are also changes to many other tax regimes under the budget 2023, and here are some of the changes to the new tax regime slabs.
- For new income tax, the new budget tax regime will allow a standard deduction of Rs. 50,000 to salaried individuals, and up to Rs. 15,000 deductions from family pension.
- The exemption threshold for Leave encashment has been increased to Rs 25 lakh.
- Withdrawable EPF will now attract a TDS rate of 20%.
- The capital gains tax exemption under Sections 54 to 54F is restricted to Rs 10 crores.
- Under the new tax regime, the highest rate of surcharge has been reduced from 37% to 25%.
5) Differences Between 2022 And Budget 2023 Income Tax
The tax exemption for individuals has been increased to Rs. 7 lakh, but only for those who opt for the new tax regime.
Moreover, in the old income tax regime, investments in specified funds under Chapter VI-A such as 80C, 80CCC, and 80CCD allowed deductions, and one could claim a deduction of up to Rs. 2 lakh. There were deductions allowed under 80D for medical insurance, 80E for interest paid on education loans, House Rent Allowance, LTA, etc. till last year, but in the new tax regime, none of these deductions can be claimed.
However, no announcements have been made regarding changes to section 80C limit of the Income Tax Act, 1961. So, someone planning to continue with the old regime for the financial year 2023 can continue to claim a maximum deduction of Rs 1.5 lakh in a financial year.
6) Tips For Filing Your Taxes Under the New Income Tax Slab For FY 23-24
There is a simple step process to be followed for the calculation of taxes under the new regime:
- Calculate the gross income under all 5 heads of income i.e. salary, house property, capital gains, business or profession, and other sources.
- Calculate the total deductions available.
- Deduct the deductions from the gross income to arrive at the net taxable income.
- Go by the new income tax slabs for tax percentage.
So now, a person with an income less than Rs. 7 lakhs need not invest anything and can spend their entire income on expenses. Under the circumstances, it makes sense for individuals with family responsibilities to invest in assured returns schemes like a Term Plan from IndiaFirst Life Insurance, that offers a guaranteed payout under the specified terms. Furthermore, the final benefit amount released under a Term Plan is tax-free under Section 10(10D), so with increased income (less going to taxes,) this may be an opportunity to invest in schemes that will provide long-term benefits.
The new budget 20023 also ha some provisions for conveniences for tax paying citizens:
- A simple and easy to use, and uniform Common Income Tax Return (ITR) Form,.
- Strengthening of the grievance redressal mechanism for direct taxes, with 100 Joint Commissioners deployed to handle small appeals indirect tax matters.
The new tax regime slabs proposed for the budget 2023-24 indicate a plan for continued stability, higher income for disposal, and smarter investments that citizens can work towards.
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