Proposed changes to New Tax regime in Union Budget, 2023
February 11, 2023 | By: Manimaan AnandIn this blog, I will be discussing the changes which have been proposed for the new tax regime. The new tax regime was first introduced in the Budget of 2020 for the financial year 2020-21 under section 115BAC. So, the new regime was applicable from assessment year 2021-22. This scheme is applicable for an Individual, Hindu Undivided Family (HUF), Association of Persons (other than cooperative), Body of Individuals and Artificial Juridical Person. This section allowed the income to be taxed at different rates if the person’s income was computed foregoing certain deductions or exemptions which I’ll be discussing in a later blog.
I will be presenting the changes to slab rates in the current new regime and the proposed new regime in the form of a table just to give a gist and then write brief notes to explain them:-
| Total income under current new regime (₹) | Tax Rate for current new regime (Till FY 2022-23) (%) | Total income under proposed New Regime (₹) | Tax rate for proposed new regime (From FY 2023-24) (%) |
| Upto 2,50,000 | Nil | Upto 3,00,000 | Nil |
| From 2,50,001-5,00,000 | 5 | From 3,00,001-6,00,000 | 5 |
| From 5,00,001-7,50,000 | 10 | From 6,00,001-9,00,000 | 10 |
| From 7,50,001-10,00,000 | 15 | From 9,00,001-12,00,000 | 15 |
| From 10,00,001-12,50,000 | 20 | From 12,00,001-15,00,000 | 20 |
| From 12,50,001-15,00,000 | 25 | Above 15,00,000 | 30 |
| Above 15,00,000 | 30 | – | – |
As can be seen from the above table, the basic exemption limit has now been increased from ₹2,50,000 to ₹3,00,000 which gives the tax payer an additional benefit of ₹50,000 for every successive slab. And a second major change which was proposed was that the rebate limit under section 87A has now been increased to a total income of ₹7,00,000 under the proposed new regime. This means that earlier a person having a total income upto ₹5,00,000 had to pay no tax under the new regime but now that limit will be revised to ₹7,00,000. And also a person earning upto ₹3,00,000 will not be required to file his/her return of income under the proposed new regime. Earlier, the standard deduction of ₹50,000 under section 16 for salaried individual and deduction for family pension of ₹15,000 under section 57(iia) was allowed only under the old regime. Now, it is proposed to be allowed under the new regime as well.
The last major change I will be discussing is the reduction in the maximum surcharge rate that is proposed to be reduced under the new regime. Earlier, the surcharge rates were the same under the old and the new regime and I will present this in the form of a table:-
| Total income under old regime and current new regime (₹) | Surcharge for old regime and current new regime (Till FY 2022-23) (%) | Total income under proposed new regime (₹) | Surcharge for proposed new regime (From FY 2023-24) (%) |
| Upto 50,00,000 | Nil | Upto 50,00,000 | Nil |
| From 50,00,001-1,00,00,000 | 10 | From 50,00,001-1,00,00,000 | 10 |
| From 1,00,00,001-2,00,00,000 | 15 | From 1,00,00,001-2,00,00,000 | 15 |
| From 2,00,00,001-5,00,00,000 | 25 | Above 2,00,00,000 | 25 |
| Above 5,00,00,000 | 37 | – | – |
As can be seen from the above table, the maximum rate of surcharge is proposed to be reduced from 37% to 25% which will reduce the maximum effective rate of income tax from 42.7% to 39%. This will be a big benefit for the people with a higher income. And for the people with lower income, the increment in the income eligible for rebate will be a huge benefit.
This was an elaborate discussion of the proposed changes to the new tax regime and how it will benefit the eligible persons.
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