In her fifth budget, Union Finance Minister Nirmala Sitharaman made a major announcement regarding changes in income tax — the rebate limit has been increased for those with incomes of up to Rs 7 lakh under the new regime. The existing limit stands at Rs 5 lakh. This means that people who earn less than Rs 7 lakh taxable income per year will not have to pay any income tax.
For those earning above Rs 7 lakh, the new regime will tax the income at 0% between Rs 0 and 3 lakh; a tax of 5% for income between Rs 3 and 6 lakh; 10% for income between Rs 6 and 9 lakh; 15% for income between Rs 9 and 12 lakh; 20% for income between Rs 12 and 15 lakh. A 30% tax will be levied for income above Rs 15 lakh. The new income tax regime has been made the default tax regime, while citizens will continue to have the option to avail the benefit of the old tax regime. Under the old regime, income under Rs 5 lakh was taxed at 0%, Rs 5-7.5 lakh at 15%, Rs 7.5-10 lakh at 20%, and above Rs 10 lakh at 30%.
FM Nirmala Sitharaman made five major announcements concerning income tax rates, which was much awaited after two years of no major changes. She also announced that the number of tax slabs will be reduced from six to five. “This will provide major relief to all taxpayers 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% of his or her income. It is a reduction of 25% on what he or she is required to pay now, that is, Rs 60,000,” she said in her speech.
The third announcement was made for salaried class and pensioners, including family pensioners, to extend the standard deduction. Each salaried person with an income of Rs 15.5 lakh or more will stand to benefit by Rs 52,500.
India has the highest income tax rate for those in the highest bracket, the FM said, and proposed to reduce the highest surcharge rate from 37% to 25% in the new tax regime, which would result in reduction of maximum tax rate to 39%.
Lastly, the limit of Rs 3 lakh for tax exemption on leave encashment on retirement of non-government salaried employees was last fixed in 2002 when the highest basic pay in the government was only Rs 30,000 per month. With the increase of government salaries, the limit has been increased to Rs 25 lakh.
A new one-time small savings scheme for women was also announced. The scheme, Mahila Samman Savings Certificate, will be made available for a two-year period up to March 2025. The scheme will provide women with a deposit facility of up to Rs 2 lakh in their name for a tenure of two years, at fixed interest rate of 7.5%.