Impact of Budget 2023 on Personal Income Tax

Discover the impact of Budget 2023 on Personal Income Tax, including changes in tax rates, exemptions, deductions, and the choice between old and new tax regimes.

Budget 2023 has made the new regime as default regime from FY 2023-24. However, old regime is still effective. Taxpayer still has the option to choose between old regime & new regime. With the introduction of reduced tax rates & increased rebates, new regime has become more beneficial to the assesses.

New taxes defined under the budget for individual, HUF, AOP, BOI are as follows: 

Slab	Total Income	Rate of Tax
I	Upto Rs. 3,00,000/-	0%
II	Rs. 3,00,001/- to Rs. 6,00,000/-	5%
III	Rs. 6,00,001/- to Rs. 9,00,000/-	10%
IV	Rs. 9,00,001/- to Rs. 12,00,000/-	15%
V	Rs. 12,00,001/- to Rs. 15,00,000/-	20%
VII	Above Rs. 15,00,000/-	30%

Major changes in new tax rates

I. Tax slabs have been increased by INR 50,000 each.

II. Further, rebate of Rs. 25,000 shall be provided to the taxpayers with the total income not exceeding Rs. 7,00,000.

III. Further, standard deduction of Rs. 50,000 can also be claimed by the taxpayer.

IV. New tax regime has become default tax regime.

Exemptions Allowable Under New Tax Regime

i) Interest and final payment under PPF [u/s 10(11)]

ii) Interest and final payment under Sukanya Samriddhi  Yojana [u/s 10(11A)].

iii) Sum received from Life Insurance Policy [10(10D)] – New Policy after 01-04-2023 limit upto 5 Lakhs annual premium.

iv) Payments including withdrawals from NPS [u/s 10(12A)/(12B)]

v) Gratuity [u/s 10(10)], Commutation of Pension [u/s 10(10A)], Leave Encashment [u/s 10(10AA)], Retrenchment Compensation [u/s 10(10B)], Compensation on Voluntary Retirement or Separation [u/s 10(10C)], Non Monetary  Perquisite by Employer [u/s 10(10CC)], Interest and Withdrawal from Recognised Provident Fund [u/s 10(12)], Payment from approved Superannuation Fund [u/s 10(13)]

vi) If lower tax regime is opted, Alternate Minimum Alternate Tax u/s 115JC is not applicable.

Blocked Deductions/ Incentives In New Tax Regime

i) Leave Travel Concession [u/s 10(5)]

ii) House Rent Allowance [u/s 10(13A)]

iii) Special Allowance other than those as may be prescribed [u/s 10(14)]

iv) Allowances to MP/ MLAs [u/s 10(17)]

v) Exemption of Rs. 1500/- for clubbed income of minor child [u/s 10(32)]

vi) Special Economic Zone [u/s 10AA]

vii) Entertainment Allowance Deduction [u/s 16(ii)]

viii) Professional Tax Deduction [u/s 16(iii)]

ix) No Adjustment of Losses brought forward from earlier years and/or Additional Depreciation of earlier years is permitted.

x) No adjustment for depreciated value of block of assets brought forward is permitted.

xi) Loss on account of Interest on Home Loan [u/s 24(b)]

xii) Additional Depreciation [u/s 32(1)(iia)]

xiii) Investment Allowance in case of Backward Area [u/s 32AD]

xiv) Tea/ Coffee/ Rubber Development Account [u/s 33AB]

xv) Site Restoration Fund [u/s 33ABA]

xvi) Deduction for Scientific Research [u/s 35(1) (ii)/(iia)/(iii), 35(2AA)]

xvii) Capital Expenditure pertaining to Specified Business [u/s 35AD]

xviii) Agricultural Extension Project [u/s 35CCC]

xix) Deduction u/s 80C to 80U [except Employers Contribution to NPS u/s 80CCD(2), Agniveer Corpus Fund u/s 80CCH, deduction u/s 80JJA and 80LA(1A)]

xx) No Adjustment of Losses brought forward from earlier years and/or Additional Depreciation of earlier years is permitted.

xxi) No adjustment for depreciated value of block of assets brought forward is permitted. Interest and final payment under PPF [u/s 10(11)

Conditions & Restrictions on “Opting-Out” Of New Tax Regime

New Tax Regime u/s 115 BAC is Default Tax Regime from FY 2023-24 onwards and provisions for Opting Out to Old Scheme are as below:-

i) For Taxpayers not having business income annual option can be exercised along with the return of income;

ii) For Taxpayers having business income one time option can be exercised before the due date for filling return of income and the same shall continue for subsequent years; Provided that for Business Taxpayers the option for Old Regime can be withdrawn only once and once withdrawn such person cannot opt for old regime again.

Now let us understand the impact of above tax rates on individual cases:

Illustrations

	CASE 1	CASE 2	CASE 3	CASE 4	CASE 5
Salary (after standard deduction)	1,000,000	1,000,000	700,000	1,500,000	800,000
HRA			80,000		24,000
LIC	150,000		150,000	150,000	150,000
Employer contribution to NPS				25,000	50,000
Mediclaim	25,000				25,000
Taxable income under old regime	825,000	1,000,000	470,000	1,325,000	551,000
Taxable income under new regime	1,000,000	1,000,000	700,000	1,475,000	750,000
Tax under old regime*	77,500	112,500	–	210,000	22,700
Tax under New Regime*	60,000 *	60,000	–	145,000	30,000
Beneficial	New Regime	New Regime	Same	New Regime	Old Regime

*Cess of 4% shall be added separately.

Each case has to be checked individually to check which tax regime is beneficial to the Taxpayer.

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About the Author: Author is CA Vidhu Duggal helping in advisory on domestic & International taxation issues. She is also founder of Vidhu Duggal & Company. Chartered Accountants, a Chartered Accountancy firm with its head office at New Delhi and can be reached at vidhu@vidhuduggalandco.com or +91-9268747482.