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Explained: Income tax for individuals in new regime

NEW DELHI: To reduce the compliance burden, promote entrepreneurial spirit and to provide tax relief to citizens, Finance Minister Nirmala Sitharaman on Wednesday enhanced the limit of income tax from Rs 5 lakh currently to Rs 7 lakh in the new tax regime.
Thus, individuals opting for new income tax regime having income upto Rs 7 lakh will not pay any tax. Currently, those with income up to Rs. 5 lakh do not pay any income tax in both old and new tax regimes.
She also increased the basic exemption limit to Rs 3 lakh from Rs 2.5 currently under the new income tax regime in Budget 2023.
Further, the income tax slabs in new tax regime has been changed.
As per the announcement, five income tax slabs will be there in FY 2023-24 from six income tax slabs currently.
The income tax slabs under the new income tax regime will be as follows:
a) Between Rs 0 to Rs 3 lakh – 0% tax rate
b) Between Rs 3 to 6 lakh – 5%
c) Between Rs 6 to 9 lakh – 10%
d) Between Rs 9 lakh to Rs 12 lakh – 15%
e) Between Rs 12 lakh to Rs 15 lakh – 20%
f) Above Rs 15 lakh above – 30%
The new income tax regime has also become the default tax regime. However, the individuals will have an option to continue with the old income tax regime.
This will provide major relief to all tax payers in the new regime. An individual with an annual income of Rs. 9 lakh will be required to pay only Rs. 45,000/-. This is only 5 per cent of his or her income. It is a reduction of 25 per cent on what he or she is required to pay now, i.e. Rs. 60,000/-. Similarly, an individual with an income of Rs. 15 lakh would be required to pay only Rs. 1.5 lakh or 10 per cent of his or her income, a reduction of 20 per cent from the existing liability of Rs. 1,87,500/.
The government has also reduced the surcharge of highest rate from 37% currently to 25% on income above Rs 5 crore in new tax regime. This would result in reduction of the maximum tax rate to 39 per cent from the present 42.74 per cent, which is among the highest in the world. However, no change in surcharge is proposed for those who opt to be under the old regime in this income group.
“”HNIs impacted by the surcharge have reasons to be happy. Mid income groups too. Essentially, income up to Rs. 7.5 lakh a year is now tax-free. This will boost sentiment at those income levels. Taxes may marginally reduce between Rs. 7 and 15 lakh on the new regime. Taxpayers now need to evaluate if they still need to be on the old regime. The new regime is going to be the way forward. The old regime with its brackets frozen in 2013 may not be enhanced anytime soon,” said Adhil Shetty, Chief Executive Officer (CEO) and Co-founder of
The Finance Minister also extended benefits of standard deduction to the new tax regime for salaried class and pensioners. Each salaried person with an income of Rs 15.5 lakh or more will thus stand to benefit by Rs 52,500/-. At present, standard deduction of Rs. 50,000/- to salaried individuals and deduction from family pension up to Rs. 15,000/- is currently allowed only under the old regime.
She also increased the tax exemption limit to Rs 25 lakh on leave encashment on retirement for non-government salaried employees. At present, the maximum amount which can be exempted is Rs. 3 lakh.

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