How to save Income Tax in FY 2023-24

In India the salaried class is the largest group of taxpayers, accounting for around 50% of the total income tax returns filed in 2022. The Finance Minister Nirmala, Sitharaman in her fifth Budget Speech gave some relief to the individual tax payers or to the common salaried people.

This budget is significant as it is the last full budget before the next general elections. The finance minister, however, will get a chance to present another Union Budget in early 2024.

However, in her budget today Finance Minister Sitharaman has tried to do here best for the Aam Aadami by increasing the rebate limit from 5 lakhs to 7 lakhs. 

THE NEW INCOME TAX REGIME EXPLAINED 

If a person's income is up to Rs 7 lakhs after claiming all rebates, he/she will not be subject to income tax. 

After claiming all possible rebates, if the taxpayer's income exceeds RS 7 lakhs, he or she will be subject to income tax based on the slab rate.

The new personal tax regime to have five slabs as following. 

• 5 per cent tax on total income between 3 to 6 lakhs 
• 10 per cent tax on total income between 6 to 09 lakhs
• 15 per cent tax on total income between 09 to 12 lakhs
• 20 per cent tax on total income between 12 to 15 lakhs
• 30 per cent tax on total income between 15 lakhs & above

Now this new Income Tax regime is a default regime for all personal income tax returns. 

As part of the reformed tax regime, the highest surcharge rate will be reduced from 37% to 25%. In this way, the maximum tax rate will be lowered to 39%.

“Earlier income up to 5 lakhs was the threshold limit for rebate. Now its 7 lakhs, but it's for the new tax regimeIndividual taxpayers opting for the new tax regime have got benefits in this budget. Whereas the old tax regime remains the same. No change in the slab rates for those who opt for the old tax regime," says Mumbai-based Tax Consultant & Lawyer Rakesh Singh.

Other Tax proposals 

• 100 more  Jt. commissioner for speedy disposal of appeals
• Exemption 54 & 5F A restricted to 10 Cr
• TDS reduced from 30% to 20% on EPF withdrawals

The FM in her speech said - “The Current tax rate in country is 42.74%, among the highest in world. Budget 2023 proposes to reduce the highest surcharge rate from 37% to 25% in the new Tax regime This will result in the reduction of the maximum tax rate to 39%."

The total benefit for an individual whose income is up to 15.5 lakhs per annum is said to have additional disposable income of Rs. 52500 under the Income Tax regime, however, with increasing inflation and job cuts, this may not be sufficient for a standard family of 6 people.

It’s the salaried class that has limited avenues for saving the tax. The common complaint of salaried class is to save tax they have to make investments, and that reduces their disposable income drastically. The tax on expenses remains a huge concern for lower or middle-income groups. GST on various food items and services makes a huge dent for households. 

Hopefully the FM will come out with more creative ideas for the middle class and bring in some GST rebate for expenses incurred by the salaried people.

Leave Encashment

Another proposal of the budget proposed extension of limit of tax exemption on leave encashment to Rs. 25 lakh on retirement of non-government salaried employees in line with the government salaried class. At present, the maximum amount which can be exempted is Rs. 3 lakh.   

The budget proposed to make the new income tax regime as the default tax regime.  However, citizens will continue to have the option to avail the benefit of the old tax regime.

image widget