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The concessional tax regime pot has been sweetened in Budget 2023. It proposes to raise the basic exemption limit to ₹3 lakh, cut the tax slab rates and improve the tax rebate limit to ₹ 7 lakh from the stream ₹5 lakh, which means individuals with income up to ₹7 lakh will not pay any tax under the concessional system. There is relief for the super rich too: the above income surcharge ₹5 crore is being reduced from 37% to 29%. This brings the maximum marginal tax rate down to 39% from 42.74%. It aims to attract more taxpayers to the simplified concessions regime as it has received few takers since its introduction. Although the proposed changes will significantly reduce the tax outlay for those who have already opted into the new regime, it may not be beneficial for you to switch from the old regime to the new one. Back-of-the-envelope calculations show that there are taxpayers who make investments on the basis of it ₹4.2 lakh to avail tax breaks under the old regime is better to stick with it. The table above shows the old tax slabs and the new tax slabs of the concessional tax system.
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The proposed changes will change the tax payout for taxpayers already under the concessional tax system from FY24. Income up to ₹7 lakh is exempt from paying any tax with the increased tax rebate limit. In fact, with a standard deduction of ₹50,000 provided to salaried persons and pensioners, taxpayers in these categories with income up to ₹7.5 lakh will pay zero tax. For income above ₹7 lakh, there is a 20-30% reduction in tax outlay.
For example, a taxpayer whose income ₹9 lakh will pay ₹45,000 in tax besides ₹60,000 under the current slab rates. Likewise, forward tax disbursement ₹20 lakh income will decrease by about 15%.
The super-rich with earnings above ₹5 crore benefit not only from the reduced tax rates but also from lowering of surcharge which will reduce the effective tax rate from 42.7% to 39%. The table above explains the reduction in tax outlay with the new slab rates.
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