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Budgets

New Tax Regime to Become Default Option for Taxpayers

Strategic Insights

— 2 min read

The Union Minister of Finance Nirmala Sitharaman has proposed several changes to the personal income tax structure in the Budget 2023 speech, with a focus on making the New Tax Regime a default option for taxpayers. The proposals aim to simplify the income tax filing process and reduce tax liability, but may require taxpayers to manage their savings on their own without specified investments. The total revenue forgone is estimated to be around Rs 35,000 crore annually.

Key Takeaways:

  • The New Tax Regime will become the default option for taxpayers, with a proposed increase in the rebate limit to Rs 7 lakh from the current Rs 5 lakh.
  • The exemption limit under the New Tax Regime will be enhanced to Rs 3 lakh from the current Rs 2.5 lakh, with six income slabs reduced to five.
  • The Standard Deduction limit will be increased to Rs 52,500 from the current Rs 50,000 under the New Tax Regime.
  • Taxpayers opting for the New Tax Regime will not be able to avail of income tax deductions and exemptions such as Section 80C or Section 80D tax benefits.
  • However, taxpayers may still avail of the deduction allowed by Section 80CCD(2) of the Income Tax Act of 1961.
  • Alok Agrawal, Partner, Deloitte India, states that the New Tax Regime will encourage taxpayers at both ends of the spectrum, with no liability up to annual income of Rs 7 lakh and surcharge reduction on annual income above Rs 5 crores.
  • Bharat Phatak, Director of Scripbox, opines that the adoption of self-propelled investments is evident from continuous monthly flows of over 12,000 crores into mutual funds.

Statistics:

  • Estimated revenue forgone by the adoption of the New Tax Regime: Rs 35,000 crore annually.
  • Rebate limit under the New Tax Regime: Rs 7 lakh.
  • Exemption limit under the New Tax Regime: Rs 3 lakh.
  • Number of income slabs in the New Tax Regime: Five.
  • Limit of Standard Deduction under the New Tax Regime: Rs 52,500.
  • Salaried persons with income above Rs 15.5 lakh will benefit by Rs 52,500.
  • Monthly flows into mutual funds: Over 12,000 crores.

Sources:

  • "Budget 2023 speech" by Union Minister of Finance Nirmala Sitharaman.
  • Interview with Alok Agrawal, Partner, Deloitte India.
  • Interview with Bharat Phatak, Director of Scripbox.
  • Section 87A of the Income Tax Act of 1961.
  • Section 80CCD(2) of the Income Tax Act of 1961.
  • "IE Online Media Services Pvt. Ltd., distributed by Contify.com" (Copyright 2023).

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