February 6, 2023

Union Budget-2023-24| Changes for Salaried Assessee

Entire India including Big Corporates and Middle-class families were having a lot of expectations from the Union Budget to get some tax relief in this inflation. Amid expectations from the entire India, the Hon’ble Finance Minister of India presented the First budget of “Amrit Kaal” on 1st February 2023.

This budget focused toward capex expenditure wherein priority was given to building roads, railways, and highways. This budget also brought relief for the middle class in form of higher exemption slabs, and more clarity on the new regime and the old regime. Also, the highest slab of surcharge has been reduced from 37% to 25% thereby reducing the maximum rate of income tax from 42.744% to 39%. Also, some products were made more economical and some were made more expensive.

This budget has brought major changes for salaried people and if you are the one then this article is meant for you. Here is a summary of amendments proposed for salaried persons and what impact they are having on their pockets after this budget:

1. Changes in Income Tax Slabs Rates under New tax Regime

In the Union Budget, changes are proposed in the income tax slab rate of the new regime. Following are the new Slab rates Vs the old slab rate under the new regime:

a. Slab rates under new tax regime (Proposed by Union Budget, 2023-24)

Income Range	Income Tax Rate
Upto INR 3,00,000	NIL
INR 3,00,000 to INR 6,00,000	5% on income above INR 3,00,000
INR 6,00,000 to INR 9,00,000	15000+ 10% on Income above INR 6,00,000
INR 9,00,000 to INR 12,00,000	45,000 + 15% on income more than INR 9,00,000
INR 12,00,000 to INR 1500,000	90,000 + 20% on income more than Rs 12,00,000
Above INR 15,00,000	150,000 + 30% on income more than Rs 15,00,000

b. Slab rate under new tax regime (Before Union Budget, 2023-24)

Income Range	Income Tax Rate
Upto INR 2,50,000	NIL
INR 2,50,000 to INR 5,00,000	5% on income above INR 2,50,000
INR 5,00,000 to INR 7,50,000	12500+ 10% on Income above INR 5,00,000
INR 7,50,000 to INR 10,00,000	37500 + 15% on income above INR 7,50,000
INR 10,00,000 to INR 12,50,000	75000 + 20% on income more than INR 10,00,000
INR 12,50,000 to INR 15,00,000	125000 + 25% on income more than Rs 12,50,000
Above INR 15,00,000	187500 + 30% on income more than Rs 15,00,000

2. Enhancement of base exemption threshold limit

Till FY 2022-23, the rebate is available under Section 87A up to INR 12,500 for both the old and new schemes. Therefore, no income tax was payable till income of INR 5,00,000 under both regimes.
However, rebates have been increased to INR 25,000 under the new regime.
Therefore, there will be no tax on income up to INR 7,00,000 under the new regime.

3. Entitlement of Deductions

So far, a standard deduction of INR 50,000 was available to income from salary only when the assessee is opting for the old regime of income tax.
Union budget has proposed to provide standard deduction under the new regime as well.

4. Reduced rate of surcharge

So far, the highest rate of income tax in India is 42.744%, which is the highest rate among all the countries in the world. This rate includes 30% Income tax, 4% Education cess, and 37% surcharge.
The government has proposed to reduce the highest rate of surcharge from 37% to 25% in the new regime.
Therefore, the highest rate of income tax will be 39%.

5. Option to opt for new regime or old regime

As per new income tax rules, a salaried person can choose between the new tax regime and the old tax regime as per their convenience in every financial year.
However, individuals having business income can’t choose the tax regime as per their convenience every year. If they opt for the new tax regime, they can switch back to the old tax regime only once in their life.
For those people having business income who have opted for the old regime can revoke that option only once and after that, they will continue to be taxed under the new regime.
Further, the new regime shall be the default scheme. Therefore, the assessee will be required to opt for old scheme specifically

6. Increased in exemption limit for Leave Encashment

An employee is entitled to multiple leaves during his employment periods such as sick leaves, maternity leaves, and casual leaves.
However, employees have the option to encash unveiled leaves at the time of retirement.
As per the Income tax act, leaves encashed on retirement are fully exempted in the hands of the state or central employees.
However, other employees are entitled to exemption upto the threshold limit of INR 3,00,000 given under section 10(10AA)(ii) of the Income Tax Act, 1961.
This threshold limit has been proposed to enhance upto INR 25,00,000 in budget.

7. Analysis of tax liabilities under the new regime

Following is the impact on Income Tax liability under the new tax regime before and after amendments made by Union Budget, 2023-24:

	Under New Regime (Till AY 2023-24)		Under New Regime (From AY 2024-25 onwards)
Net Income	Taxable Income	Income Tax Liability (Income Tax + Ed Cess)	Taxable Income(After considering a standard deduction of INR 50,000)	Income Tax Liability (Income Tax + Ed Cess)	Net Tax Saving
5,00,000	5,00,000	–	4,50,000	–	–
6,00,000	6,00,000	23,400	5,50,000	–	23,400
7,00,000	7,00,000	33,800	6,50,000	–	33,800
8,00,000	8,00,000	46,800	7,50,000	31,200.00	15,600
9,00,000	9,00,000	62,400	8,50,000	41,600.00	20,800
10,00,000	10,00,000	78,000	9,50,000	54,600.00	23,400
11,00,000	11,00,000	98,800	10,50,000	70,200.00	28,600
12,00,000	12,00,000	119,600	11,50,000	85,800.00	33,800
15,00,000	15,00,000	195,000	14,50,000	145,600.00	49,400
17,50,000	17,500,000	273,000	17,00,000	218,400.00	54,600
20,00,000	20,00,000	351,000	19,50,000	296,400.00	54,600

Therefore, amendments in the new regime have provided a tax benefit of INR 54,600 (52500 + 4% Ed. cess) for income of INR 15.5 Lacs or more.

8. Points to be kept before deciding for the old and new regime

A person having salary income should keep the following points in mid before deciding old or new regime of income tax:

Under old regime, the assessee is entitled to claim various exemptions and deductions such as :
- House Rent Allowance;
- LTA,
- Deduction under Section 80C, i.e., LIC, Tax saving FDs, Housing loan repayment etc.
- Deduction under 80TTA (Interest on saving bank account)
- Interest on housing loan repayment;
- Donations etc.

However, no such exemption or deduction under Chapter VI-A is permitted under the new regime.
Employees having business income should choose tax regime wisely as they have one-time option available.

DISCLAIMER: The views expressed are strictly of the author and VJM & Associates LLP. The contents of this article are solely for informational purpose. It does not constitute professional advice or recommendation of firm. Neither the author nor firm and its affiliates accepts any liabilities for any loss or damage of any kind arising out of any information in this article nor for any actions taken in reliance thereon.

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