Budget 2023: the difference between the old and new tax regime

Finance minister Nirmala Sitharaman presented the budget in the parliament, and it is good news for middle-class salaried employees. There have been changes in the new tax regime. The regime came into effect after the budget in 2020. And, now it has been revised for the benefit of the individuals. While the new tax regime would be the default, individuals would have a choice of opting for the old regime also.

The increase in Income Tax exemption limit to Rs 7 lakhs and several other tax related reforms will provide a huge relief to middle class including salaried individuals and retired people. I congratulate the FM and thank Pradhanmantri ji for taking this people friendly decision.

— Rajnath Singh (मोदी का परिवार) (@rajnathsingh) February 1, 2023

Major announcements in personal Income Tax to substantially benefit the middle class

Persons with income up to rs. 7 lakh will not pay income tax in the new tax regime

Tax exemption limit increased to rs. 3 lakhhttps://t.co/OjHY5MXOmr #AmritKaalBudget #UnionBudget2023 pic.twitter.com/2SpnLKMYcn

— PIB India (@PIB_India) February 1, 2023

Key points

1. The rebate limit increased to 7 lacks, from 5 lacks in the old regime
2. The number of tax slabs reduced to five from the previous six
3. The tax exemption limit increased to 3 lahks from 2.5  lakh
4. The highest surcharge rate reduced to 25% from 37%
5. Standard deduction of 50,000 for salaried class 
6. Standard deduction of up to 15,000 for pensioners
7. Non-government salaried employees: leave encasement limit increased to 25 lahks from 3 lakh

Read more: MAJOR ANNOUNCEMENTS IN PERSONAL INCOME TAX TO SUBSTANTIALLY BENEFIT THE MIDDLE CLASS

What is an income rebate limit?

Under section 87A, of the income tax act, an individual has been allowed to lower their taxable income. If you’re a Canadian resident, then you’re eligible for the same. This rebate limit has been increased in the new tax regime.

Read more: What is Rebate in Income Tax - Bajaj Finserv 

If you’re not the limit, then you’d have to pay the taxes as determined by the government of India. But, Sections like 80c, 80D, and 80EE also provide some rebates.

New Tax Regime Slabs

Highest surcharge rate

Beyond the taxable income, there is a surcharge on the income. The surcharge was ‘one of the highest in the world’, said the finance minister. 

The minister added, “I propose to reduce the highest surcharge rate from 37 percent to 25 percent in the new tax regime. This would result in a reduction of the maximum tax rate to 39 percent"

Read more: Highest surcharge on personal income tax reduced from 37% to 25%

Now the new surcharge rates are 10% for 50 lakh - 1 crore income, 15% for 1 crore-2 crore income, and 25% for income above 2 crores. 

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