What the Budget means for you

Budget 2023 has sweetened the concessional tax regime pot. It has proposed to hike the basic exemption limit to ₹3 lakh, cut the tax slab rates and enhance tax rebate limit to ₹ 7 lakh from the current ₹5 lakh, which means individuals with incomes of up to ₹7 lakh won’t pay any tax under the concessional regime. There is relief for the super-rich as well: the surcharge on incomes above ₹5 crore is being slashed from 37% to 29%. This brings down the maximum marginal tax rate to 39% from 42.74%. The aim is to attract more taxpayers to the simplified concessional regime as it has found few takers since its introduction. While the proposed changes will considerably reduce the tax outgo for those who have already opted for the new regime, switching from the old regime to the new one may not necessarily benefit you. Back of the envelope calculations show that taxpayers who make investments to the tune of ₹4.2 lakh to avail tax sops under the old regime will fare better by sticking to it. The table above shows the old tax slabs and the new tax slabs of the concessional tax system.

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With the proposed changes, tax outgo for taxpayers already under the concessional tax regime will change from FY24. Incomes up to ₹7 lakh are exempt from paying any tax with the tax rebate limit increased. In fact, with standard deduction of ₹50,000 made available to the salaried and pensioners, taxpayers in these categories with incomes up to ₹7.5 lakh will pay zero tax. For incomes above ₹7 lakh, tax outgo has reduced by 20-30%.

For instance, a taxpayer with income of ₹9 lakh will pay ₹45,000 in tax as opposed to ₹60,000 under the current slab rates. Similarly, tax outgo on ₹20 lakh income will reduce by about 15%.

The super-rich with earnings above ₹5 crore not only benefit from the reduced tax rates but also lowering of surcharge that will reduce the effective tax rate from 42.7% to 39%. The above table explains the reduction in tax outgo with the new slab rates.