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During her union budget 2023 speech on 01st February, 2023 Honorable Finance Minister Smt. Nirmala Sitharaman Ji has proposed to extend the benefit of standard deduction in the new income tax regime for salaried class.

Section 16 of the Income Tax Act, 1961, Standard deduction: 

As per the provisions of section 16 (ia) there is a standard deduction of Rs. 50000 (the amount of the salary, whichever is less) has been provided. It may be noted that such deduction is only available to a tax payer opting old income tax regime. It is proposed to allow standard deduction of Rs. 50000 under the new income tax regime also.

Pre Budget-

Standard Deduction of Rs. 50000 is only available to a tax payer opting old income tax regime. No such deduction is available to a tax payer opting new income tax regime.

Post Budget-

  • Standard Deduction of Rs. 50000 is available to a tax payer opting old income tax regime.
  • Standard Deduction of Rs. 50000 is available to a tax payer opting new income tax regime.

Let’s understand with help of an example, its impact on tax liability of a salaried individual. Suppose such salaried individual having gross salary of Rs. 1550000, his tax liability will be Rs. 202500 and Rs. 150000 as per New Income Tax Regime (Pre Budget) and New Income Tax Regime (Post Budget) respectively, kindly refer following computation:

Sl. No. New Income Tax Regime (Pre Budget)   New Income Tax Regime (Post Budget)
Total Income (Rs.) Tax Rate Tax Amount (Rs.)   Total Income (Rs.) Tax Rate Tax Amount (Rs.)
1 0-250000 Nil Nil 0-300000 Nil Nil
2 250001-500000 5% 12500 300001-600000 5% 15000
3 500001-750000 10% 25000 600001-900000 10% 30000
4 750001-1000000 15% 37500 900001-1200000 15% 45000
5 1000001-1250000 20% 50000 1200001-1500000 20% 60000
6 1250001-1500000 25% 62500 More than 1500000 30%
7 More than 1500000 30%

COMPUTATION OF TOTAL INCOME AS PER NEW INCOME TAX REGIME (PRE BUDGET)

SALARIES 1550000
GROSS SALARY 1550000
GROSS TOTAL INCOME 1550000
TOTAL INCOME 1550000
TOTAL INCOME ROUNDED OFF U/S 288A 1550000

COMPUTATION OF TAX ON TOTAL INCOME

TAX ON RS. 250000 NIL
TAX ON RS. 250000 (500000-250000) @ 5% 12500
TAX ON RS. 250000 (750000-500000) @ 10% 25000
TAX ON RS. 250000 (1000000-750000) @ 15% 37500
TAX ON RS. 250000 (1250000-1000000) @ 20% 50000
TAX ON RS. 250000 (1500000-1250000) @ 25% 62500
TAX ON RS. 50000 (1550000-1500000) @ 30% 15000
TAX ON RS. 1550000 (A) 202500

COMPUTATION OF TOTAL INCOME AS PER NEW INCOME TAX REGIME (POST BUDGET)

SALARIES 1500000
GROSS SALARY 1550000
LESS: STANDARD DEDUCTION U/S 16(ia) 50000
TAXABLE SALARY 1500000
GROSS TOTAL INCOME 1500000
TOTAL INCOME 1500000
TOTAL INCOME ROUNDED OFF U/S 288A 1500000

COMPUTATION OF TAX ON TOTAL INCOME

TAX ON RS. 300000 NIL
TAX ON RS. 300000 (600000-300000) @ 5% 15000
TAX ON RS. 300000 (900000-600000) @ 10% 30000
TAX ON RS. 300000 (1200000-900000) @ 15%

TAX ON RS. 300000 (1500000-1200000) @ 20%

45000

60000

TAX ON RS. 1500000 (B) 150000

After comparison of above two computation A and B, it can be said that salaried person with an income of Rs. 15.50 lakhs or more will thus stand to benefit by Rs. 52500.

Disclaimer: The content mentioned in this article is based on my personal views and the same can not be taken as legal opinion or otherwise.

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