scorecardresearchBudget 2023: No income tax up to ₹7 lakh but it falls under 10% tax slab; How to save tax then?

Budget 2023: No income tax up to 7 lakh but it falls under 10% tax slab; How to save tax then?

Updated: 07 Feb 2023, 08:57 AM IST
The new tax regime offers respite to low and middle-income taxpayers as they benefit from low tax liability.
Those earning up to  <span class='webrupee'>₹</span>7 lakh have zero tax liability under the new tax regime.

Those earning up to 7 lakh have zero tax liability under the new tax regime.

The Budget 2023 announcement on February 01, 2023 brought cheer to many income taxpayers seeking simplification in the tax assessment process and reducing the number of income slabs. The Union finance minister Nirmala Sitharaman said, “The government proposes to increase the income tax rebate limit from 5 lakh to 7 lakh in the new tax regime.”.

While this relaxation in tax liability among the low and middle-income groups, many questions were posed on how taxpayers earning between 6 lakh and 9 lakh could be completely exempt from tax given current income tax slab rates.

The income tax rates under the new tax regime include

Income SlabTax Liability (in %)
Income of 0-3 lakhNil
Income above 3 lakh and up to 5 lakh5%
Income of above 6 lakh and up to 9 lakh10%
Income of more than 12 lakh and up to 15 lakh20%
Income above 15 lakh30%

Though taxpayers have the option to assess their income tax liability according to the rates mentioned in the old regime, the new income tax regime will be the default tax regime. With 5% and 10% rates being imposed on income in the range of 3-5 lakh and 6-9 lakh, respectively, taxpayers are wondering at the available exemptions and deductions that would allow scope for a complete exemption for those falling in this income group.

CA Kanan Bahl, a Finance Educator and Growth Consultant shares, “Those earning up to 7 lakh need not pay taxes if they opt for the new regime. They can also consider investing in Section 80C options up to 1.5 lakh and claim 50,000 of the standard deduction. This way they'll be neutral with respect to the tax regimes.”

Individuals who choose the new tax regime and have taxable income of up to 7 lakh will be eligible for a full tax rebate under Section 87A of the Income Tax Act, 1961.

Let’s see how the same is possible.

Under the new tax slab, your tax liability will be

Income up to 3 lakh: Nil

Income from 3 lakh to 5 lakh: 5% of 3,00,000 = 15000

Income from 6 lakh to 7 lakh: 10% of 1,00,000 = 10000

So, the total tax liability turns out to be 25,000

The revised limit under Section 87A of the Income Tax Act is applicable only when one calculates income tax under the new regime.

Taxpayers choosing the new tax regime can avail of the benefits of a full rebate on taxable income up to 7 lakh. The net result is “Zero Tax Liability”. However, taxpayers will be exempt from tax only when their gross taxable income is 7 lakh.

Scenario one: Old vs new tax regime
First Published: 07 Feb 2023, 08:28 AM IST