The Union Budget 2023, presented by Finance Minister Nirmala Sitharaman has introduced some major changes to the rebate rate limits favorable to the middle-income earners along with some slab changes.
The taxability of direct tax payers now starts from Rs. 3 Lakhs, in comparison to Rs. 2.5 Lakhs earlier, as per the new regime. The reduction in the number of slabs to five, further simplifies the complexity of the direct tax-verse.
However, the rebate limit which is higher now, is applicable only to the new income tax regime, which most of the middle class taxpayers had refrained from opting for. The higher rebate rate limit at Rs. 7 Lakhs compared to Rs. 5 Lakhs, is a major relief to taxpayers. The change in Section 87A rebate that allowed the taxpayers to avail exemption from paying any tax was made exclusively to the new regime followers.
Currently, taxpayers with income up to Rs. 5 lakh do not pay any income tax in both old and new tax regimes. The Finance Minister proposed to increase the rebate limit to Rs. 7 lakh in the new tax regime. Thus, persons in the new tax regime, with income up to Rs. 7 lakh will not have to pay any tax.
The benefit of standard deduction of Rs. 52500/- has also been extended for the salaried class and pensioners, in the new regime. In short, if you have taxable income above 15.5 Lakh Rupees, you will benefit from this deduction.
But the rebate limit hike is applicable, only to the new regime, which does not allow the deductions from Section 80C to 80U. So, if you are not a person who invests in the deductible categories falling under the Sections 80C to 80U, then going with the new regime will be a better option for more tax savings.
On the other hand, if you have recurring investments in allowable deductions provided in the said provisions, then the old regime might still be a better option for you. However, It is important to plan investments well in advance and consult with financial advisors and tax professionals to make informed decisions and take full advantage of the tax-saving opportunities.
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