With the union budget of 2023 presented, expectations among the salaried income group are soaring. The increasing cost of living and rising inflation had already put pressure on individual finances; now, the recent layoffs in the tech sector have given more reasons to worry.
As a result, more than 80 million taxpayers had their hopes set high on tax relief through higher standard deductions on salary from the government. This tax deduction on salary is a flat deduction available to employees to achieve parity between the different taxpayers.
Here’s what the 2023 budget had in store for income tax provisions and salary deductions.
Standard deduction on salary in the past budgets
Historically, the standard salary deduction was a major tax benefit available to salaried employees for years before being removed in 2005. However, in 2018, a salary deduction of Rs. 40,000 was reinstated, replacing tax benefits available for transport allowance (Rs. 19,200) and reimbursement of medical expenses (Rs. 15,000). Thus, resulting in an additional tax deduction of Rs. 5,800.
Apart from reducing the employees’ tax liability, this move had a positive impact on budget 2018 with the aim of minimising paperwork and compliance burden on the employers. Again, in 2019, the tax limit was increased to Rs. 50,000.
Impact of budget 2023 on income tax
This year’s budget witnessed massive changes to the existing income tax structure, including a decrease in the number of income slabs to 5 and changes in tax rates. Here’s all you need to know about the revisions in income tax rules and their impact.
1. Salary deduction under the new tax regime
Under the new tax regime, the tax exemption limit is now Rs. 3 lakhs, and the system will decrease the income slabs from six to five. As a result, pensioners and salaried employees will now benefit from a higher standard deduction of Rs. 52,500 for taxable income above Rs. 15.5 lakhs.
2. Increase in tax rebate limit
With changes in the income tax regime, the budget has also proposed an increase in the tax rebate limit from Rs. 5 lakhs to Rs. 7 lakhs. This is good news for individuals with income less than Rs. 7 lakhs, as their entire income would now be tax-free irrespective of the investments they make. So they no longer have to look for investment schemes to claim tax exemption.
It will, thus, help in increasing disposable income and give higher consumption power to the middle-income group.
3. Revisiting tax rates
In the 2023 union budget, the finance minister, Nirmala Sitharaman, has announced a reduction in the highest tax rate to 39% from the previous 42.74%. What’s more, the FM has also proposed to reduce the highest surcharge rate from 37% to 25% under the new tax regime. Thus, further boosting the growth of the individual taxpayer.
To sum up
With an increase in standard deductions, higher tax rebate limits, and lower tax rates, the impact of budget 2023 on income tax will be positive for salaried individuals. Looking for an affordable loan amidst the hopes for a better fiscal year? Turn to Tata Capital Moneyfy Website to explore our wide range of customised loans at attractive interest rates or you can use the Moneyfy App.