Is the basic income tax exemption limit to be increased to Rs 5 lakh?

Is the basic income tax exemption limit to be increased to Rs 5 lakh?

Budget speech by FM

Personal Income Tax

1. Now, I come to what everyone is waiting for -- personal income tax. I have five significant announcements to make in this regard. These primarily benefit our hard-working middle class.

2. The first one concern rebate. Currently, those with income up to 5 lacks do not pay any income tax in both old or new tax regimes. I propose to increase the rebate limit to 7 lacks in the new tax regime. Thus, persons in the new tax regime, with income up to 7 lacks will not have to pay any tax.

3. The second proposal relates to middle-class individuals. I introduced, in the year 2020, the new personal income tax regime with six income slabs starting from 2.5 lacks. I propose to change the tax structure in this regime by reducing the number of slabs to five and increasing the tax exemption limit to 3 lacks. The new tax rates are:

Basic Exemption Limit Increased for New Regime only New Slab Rates are Income 0-3 Lakh Tax Nil Income 3-6 Lakh Tax @ 5% Income 6-9 Lakh Tax @ 10% Income 9-12 Lakh Tax @ 15% Income 12-15 Lakh Tax @ 20% Income above 15 Lakh Tax @ 30%

This will provide major relief to all taxpayers in the new regime. An individual with an annual income of 9 lacks will be required to pay only 45,000/-. This is only 5 per cent of his or her income. It is a reduction of 25 per cent on what he or she is required to pay now, ie, 60,000/-. Similarly, an individual with an income of 15 lacks would be required to pay only 1.5 lacks or 10 per cent of his or her income, a reduction of 20 per cent from the existing liability of 1,87,500/.

My third proposal is for the salaried class and the pensioners including family pensioners, for whom I propose to extend the benefit of the standard deduction to the new tax regime. Each salaried person with an income of 15.5 lacks or more will thus stand to benefit by 52,500.

My fourth announcement on personal income tax is regarding the highest tax rate which in our country is 42.74 per cent. This is among the highest in the world. I propose to reduce the highest surcharge rate from 37 per cent to 25 per cent in the new tax regime. This would result in a reduction of the maximum tax rate to 39 per cent.

Lastly, the limit of 3 lacks for tax exemption on leave encashment on the retirement of non-government salaried employees was last fixed in 2002, when the highest basic pay in the government was 30,000/- pm. In line with the increase in government salaries, I am proposing to increase this limit to 25 lacks.

We are also making the new income tax regime the default tax regime. However, citizens will continue to have the option to avail the benefit of the old tax regime.