New Delhi: Presenting her fifth Budget Wednesday, Finance Minister Nirmala Sitharaman balanced her government’s focus on economic growth and job creation with a popular touch – reduced personal income tax so that the middle class could have more money in hand to spend.
Sitharaman told Parliament that she would reduce the tax slabs from seven to five for the next financial year, and also increase the bottomline exemption limit to Rs 3 lakh.
Sitharaman said income tax on the new slabs would be – Nil for Rs 0 to Rs 3 lakhs, 5% for Rs 3 to 6 lakhs, 10% for Rs 6 to 9 lakhs, 15% for Rs 9 to 12 lakhs, 20% for Rs 12 to 15 lakhs and 30% above Rs 15 lakhs.
The overall tax rebate would also be extended on income up to Rs 7 lakh from Rs 5 lakh earlier, the minister said, as her government gears up to win a rare third term next year.
Sitharaman made the tax announcement at the end of her 87-minute Budget speech. She said: “Now, I come to what everyone is waiting for — personal income tax. I have five major announcements to make in this regard. These primarily benefit our hard-working middle class.”
She spoke about the rebate first – “Currently, those with income up to Rs 5 lakh do not pay any income tax in both Old and New tax regimes. I propose to increase the rebate limit to Rs 7 lakh in the New tax regime.”
Her second decision directly affected the middle class. “I have introduced, in the year 2020, the new personal income tax regime with six income slabs starting from Rs 2.5 lakh. I propose to change the tax structure in this regime by reducing the number of slabs to five and increasing the tax exemption limit to Rs 3 lakh,” the minister said.
She added an individual with an annual income of Rs 9 lakh will now pay only Rs 45,000, as against the Rs 60,000 earlier.
She also increased the benefit of “standard deduction” while calculating taxable income of the salaried and pensioners, saying: “Each salaried person with an income of ₹ 15.5 lakh or more will thus stand to benefit by ₹ 52,500.”
She also brought down the highest applicable tax rate in India — from 42.74% to 39%.
“Lastly,” Sitharaman said, “The limit of Rs 3 lakh for tax exemption on leave encashment on retirement of non-government salaried employees was last fixed in the year 2002, when the highest basic pay in the government was ₹ 30,000 per month. In line with the increase in government salaries, I am proposing to increase this limit to Rs 25 lakh.”
The industry has strongly demanded the rationalisation of income tax slabs and rates for individuals in this Budget, with the aim to equip people with more disposable cash to increase consumption in the economy. This would fuel more investments and jobs, ThePrint reported last week.
The Confederation of Indian Industry had told the Finance Ministry: “The Budget should address the sluggish recovery in demand at the lower end of the consumption strata by rationalising personal income tax slabs and rates at the lower end. This will boost disposable incomes and also provide targeted relief from inflation.”
Also read: Budget 2023: Modi govt on track on 2022 capex promises, states lag. Punjab, Bihar repeat offenders