Union Budget 2023: A look at personal tax proposals

• The Budget aims to address the concerns raised on the new tax regime since it has not taken off as expected.
  
• The limits under sections 80C and 80D of the Act have remained constant; they were widely expected to be increased but this has not happened.
  
• The proposals made in Budget 2023 are welcome and expected to improve overall growth and development.
  

The Economic Survey of 2022-23 expects the Indian economy to grow at 7% for the year ending March 2023, with the country also widely projected to be the fastest growing economy in FY23. At a time when the global economy is grappling with recessionary pressures, this status is a boon.

In light of the above and considering that tax rates, deduction and exemption limits, have relatively remained unchanged for some time now, the expectations of individual taxpayers from the Union Budget were quite high. Finance Minister Nirmala Sitharaman proposed to introduce five major amendments to tax regulations, impacting individual taxation. It is important to note that all these changes, except that relating to leave encashment, apply only to the new tax regime.

The changes are mentioned below:

Rebate under section 87A:

At present, for individuals with total income up to ₹5 lakh per annum, there is no tax payable. As per the Budget This limit has now been raised to ₹7 lakh per annum. With this, individuals having total income up to ₹7 lakh per annum, will not be required to pay any taxes.

Personal Taxation Rates:

The personal tax slabs under the new tax regime have now been reduced to five (as against six currently). The new tax slabs along with the rates are as follows:

Income levels	Tax Rate
Up to 3 Lakh	Nil
Rs 3 Lakh to Rs 6 Lakh	5%
Rs 6 Lakh to Rs 9 Lakh	10%
Rs 9 Lakh to Rs 12 Lakh	15%
Rs 12 Lakh to Rs 15 Lakh	20%
Over 15 Lakh	30%

With the above change, individuals with an income level of ₹15 lakh will get a tax benefit of ₹37,500, as compared to the previous slabs and rates before considering the impact of standard deduction.

Benefit of Standard deduction:

Salaried individuals and pensioners (including family pensioners) will be eligible for standard deduction of ₹50,000, under the new tax regime aligning with the old regime. Currently, standard deduction cannot be claimed under the new tax regime.

Reduction in Surcharge rate:

With India having one of the highest maximum tax rates of 42.74%, it is proposed to reduce the top surcharge rate from 37% to 25%, for income above ₹5 crore, effectively reducing the maximum tax and surcharge rates to 39% and 25% respectively.

Increase in leave encashment exemption limit:

The amount of leave encashment received that can be claimed as exempt, has been proposed to be increased from ₹3 lakh to ₹25 lakh for non-government employees citing significant increase in basic salary levels.

Apart from the above key amendments, the finance minister also highlighted the new generation income tax return forms that would further simplify the compliance process.

Budget 2023 proposes capping the deduction under sections 54 and 54F against long-term capital gains to ₹10 crore, besides taxing the maturity proceeds received from life insurance policies during the life of the individual, where the total premium per annum for new policies after April 1, 2023, is over ₹5 lakh.

Concluding remarks

Has Budget 2023 really met the expectations of the common man? To some extent yes. The Budget aims to address the concerns raised on the new tax regime since it has not taken off as expected. It has also been specified by the finance minister that effective April 1, 2023, the new tax regime will be the default tax regime though individuals will still have the option to continue with the old tax regime, if beneficial.

While the Budget would be hugely appreciated for its hits, there are few expectations that have remained so from an individual taxation perspective. For example, the limits under sections 80C and 80D of the Act have remained constant; they were widely expected to be increased but this has not happened.

Further, with the world moving towards remote working, it was important to back this new normal with related tax reliefs to make it a success. Nevertheless, the proposals made in Budget 2023 are welcome and expected to improve overall growth and development, specifically with the increase in budget for infrastructure.

(Radhika Viswanathan is the executive director and Vinit Turakhia, senior manager at Deloitte Haskins & Sells LLP India.)