Budget 2023: Income tax rates likely to be reduced in new regime, says report

Modi govt  is considering lowering rates under its voluntary income tax framework and could introduce revised slabs in the upcoming Union Budget 2023 due on February 1, news agency Reuters reported today. However, a final decision would be taken by the Prime Minister's Office. The optional income tax regime was introduced by the government in Budget 2020 with the intention of making the tax filing process simpler for citizens. While it offers lower headline taxation for lower income groups, it has not gained popularity as it does not allow around 70 basic exemptions that can be claimed under the old tax regime. One of the government sources quoted in the Reuters report said, "Allowing exemptions and tax deductions in the new income tax regime would make it complex and this wasn't the intention while introducing the scheme.”

Currently, citizens have the option to either opt for the old income tax regime or the new one. While there is no database to see how many people have opted for the new income tax regime, chartered accountants have said there are hardly any takers for it among people who earn above Rs 10 lakh. While the new tax regime has made the process of tax filing simpler with less paperwork, most people do not view it as a tax relief. This could be the reason why the government may look at rationalising the optional tax regime further. Some of the demands that taxpayers have ahead of the upcoming budget are lower tax rates under the new regime, revision of income tax slabs and increased basic exemption limit. Under the option without deductions introduced in FY21, there are six slabs; 5%, 10%, 15%, 20%, 25%, and 30%, as against three under the one with benefits at 5%, 20%, and 30%.Under the new tax regime, annual income of up to ₹2.5 lakh is exempt, while a 5% tax applies on annual income between ₹2.5-5 lakh. An income of ₹5-7.5 lakh attracts a reduced tax rate of 10% and 15% for income between ₹7.5 lakh and ₹10 lakh, 20% on ₹10-12 lakh, 25% on ₹12.5-15 lakh and 30% on above ₹15 lakh. Sitharaman will present Union Budget for 2023-24 in the Lok Sabha on February 1.