Income Tax News: In the fiscal year 2023–2024, the government granted a direct exemption with regard to income tax slabs, a move that comes after several years. Under the new tax system, taxpayers making less than Rs 7 lakh annually can save tax on their entire income.
Introduction of Increased Tax Exemption
The government has expanded the amount of tax exemption up to Rs 7 lakh in order to make the new tax regime more appealing. For middle-class and employed individuals, it is a huge relief. Under this regime, individuals who earn less than Rs 7 lakh annually can save tax on their entire income. You won’t believe us, though, if we tell you that this range is actually Rs 7.5 lakh rather than Rs 7.
Background on Income Tax Slab Changes
In the fiscal year 2023–2024, the government has directly loosened the income tax slab after many years of consideration. Even though the new tax system was put into place two years ago, its actual useful life is over. The new tax system will be put into effect by default, as stated in the budget. Up until now, the previous tax system was in effect by default. This implies that your income tax computation will now automatically begin using the new regime if you do not inform your HR which regime to select. You had to notify your employer in advance if you wanted to pay taxes under the previous system.
Key Announcement in Budget Speech
During the budget speech, the Finance Minister discussed personal taxation and announced that income tax would be waived up to Rs 7 lakh under the new tax system. This limit used to be Rs 5 lakh. It is unclear how much tax people making Rs 7.5 lakh per year will have to pay if income up to Rs 7 lakh is declared tax-free. The government granted a standard deduction of Rs 50,000 in addition to raising the tax rebate limit from Rs 5 lakh to Rs 7 lakh. Thus, all income up to Rs 7.5 lakh was exempt from taxes.
Choosing Between Tax Regimes
A person should avoid the new tax regime if their annual income exceeds Rs 7.5 lakh and they are choosing to save. Actually, under the previous system, tax exemptions were limited to Rs 5 lakh. If your income exceeds this threshold, you will need to invest the tax savings. People who can’t invest because of growing inflation ought to switch to the new system. In this case, the tax rate on your income will be lower even if you claim the Rs 7.5 lakh tax exemption. In addition, the new regime keeps taxes at zero up to Rs 3 lakh, which will save you thousands of rupees in taxes.