Since increasing the adoption rate of the new tax regime is the priority of the current government, we need to clarify the confusion over changes in slab rates and rebate facility which are given under the new tax regime only. Now, the big statement given by the finance minister is that an individual, whose income is less than ₹9 lakh, would now have to pay a tax of only ₹45,000.
Let’s understand the full calculation of how you can save your tax by comparing the new tax rates vs old tax rates under the new tax regime. Let us assume one earns an income of ₹9 lakh in a financial year.
Tax liability under old tax rates
Tax rates in the case of old slabs of the new tax regime:
In the current example, if your income is ₹9 lakhs, you have to pay income tax according to:
Up to ₹5 lakhs: ₹12,500 [ ₹2.5 lakhs* 5%]
Up to ₹7.5 lakhs: ₹25,000 [ ₹2.5 lakhs*10%]
Up to ₹9 lakhs: ₹22,500 [ ₹1.5 lakhs*15%]
Total tax payable would be ₹60,000
Tax liability under new tax rates:
The tax slabs as per the Budget 2023 presented by the financial minister:
Now in the current example, your tax liability, if income is ₹9 lakhs, would be:
Up to ₹6 lakhs: ₹15,000 [ ₹3 lakhs*5%]
Up to ₹9 lakhs: ₹30,000 [ ₹3 lakhs*10%]
Total tax liability, as per finance minister, would be ₹45,000
Hence,
Tax liability as per old tax rates = ₹60,000
Tax liability as per new tax rates = ₹45,000
Total tax saved would be = ₹15,000
One of the personal income tax reliefs for individual taxpayers out of 5 benefits is the reduced tax rates. By looking at the current financial crisis amid massive layoffs and high inflation rates, such tax benefits come as a big relief as taxpayers are now liable to pay less income tax compared to old slab rates under the new tax regime. It will also help in achieving the target of increasing the adoption rate of the new tax regime instead of the old tax regime.
Anushka Trivedi is a freelance financial content writer. She can be reached at anushkatrivedi.com
