Currently, there are two income tax regimes from which a salaried individual has to choose one every year. The income tax rates for these two tax regimes are different.
The old income tax regime continues with the existing tax exemptions and deductions.
The budget has pushed for higher adoption of new income tax regime (introduced in 2020) which offers lower income tax rates and more slabs, with no option of availing tax exemptions and deductions.
In the new tax regime, the budget has increased the basic exemption limit to Rs. 3 lakhs from Rs. 2.5 lakhs, raised the threshold for full tax rebate and lowered the surcharge for incomes above Rs. 5 crores.
The income tax payee opting for the new tax regime can also claim the Rs. 50,000 standard deduction.
The changes under the new tax regime will be effective from April 1, 2023.
The government has introduced these measures to boost consumption and raise demand by leaving more money in the hands of the tax payers.
The government is set to lose a net revenue of Rs. 35,000 crores due to the proposed tax changes.
Though the new tax regime is aimed at reducing exemptions and easing the compliance burden, it is likely to discourage investments by individuals, especially under section 80C.
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