It is expected that hiking the tax exemption limit will leave more disposable income in the hands of people, especially those falling under the low income category.
Union Budget 2024: The Modi 3.0 government’s maiden budget will be presented next month, most likely in the last week. With about a month to go for the mega economic event, various stakeholders, including taxpayers, will have their eyes on Finance Minister Nirmala Sitharaman, who will be presenting her seventh straight union budget in Parliament.
Will FM Sitharaman give some tax relief?
The finance minister is likely to hike the tax exemption limit under the new tax regime to Rs 5 lakh from Rs 3 lakh in a bid to boost consumption, according to media reports. It is expected that hiking the tax exemption limit will leave more disposable income in the hands of people, especially those falling under the low income category.
New Tax Regime:
Up to Rs 3 lakh – Nil
Between Rs 3 lakh and Rs 6 lakh – 5% (Tax rebate u/s 87A)
Between Rs 6 lakh and Rs 9 lakh – 10% (Tax rebate u/s 87A up to Rs 7 lakh)
Between Rs 9 lakh and Rs 12 lakh – 15%
Between Rs 12 lakh and Rs 15 lakh – 20%
Above Rs 15 lakh – 30%
So if the government exempts income up to Rs 5 lakh in this upcoming budget, then there will be only five slabs remaining against the existing six slabs. There will be a tax rebate u/s 87A on income between Rs 5 lakh and Rs 9 lakh, if the other slabs are not tinkered with and attract the same taxation rates.
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Tax liability if exemption limit hiked to Rs 5 lakh in budget
If the Modi government hikes the exemption limit to Rs 5 lakh from the current Rs 3 lakh, it will lower the tax liability by Rs 10,400 (including a 4% Health and Education cess) for taxpayers with taxable incomes of approximately Rs 7.6 lakh to Rs 50 lakh.
Those with taxable incomes in the range of Rs 50 lakh to Rs 1 crore, the benefit comes to Rs 11,440 (including cess and a 10% surcharge).
Individuals with earnings of more than Rs 1 crore and up to Rs 2 crore would see their tax liability coming down by Rs 11,960 (including cess and a 15% surcharge).
Lastly, those with earnings of above Rs 2 crore can lower their tax liability by Rs 13,000 (including cess and a 25% surcharge).
The Modi government brought the new tax regime in Budget 2020 with more slabs and lower tax rates, but without any tax deduction and exemption provisions. Three years later in 2023, the government introduced the Standard Deduction of Rs 50000 under the new tax regime to attract more taxpayers. The government also made the new tax regime the default option for taxpayers last year, which means in case an individual doesn’t choose a preference, he or she will be deemed to have chosen the new tax regime.
In the upcoming budget also, it is highly unlikely that the Centre will make any changes to the slabs or tax rates under the old tax regime as it wants taxpayers to shift ultimately to the new taxation regime. Old tax regime still allows taxpayers to avail various deductions and exemptions available under the Income Tax Act, 1961.
