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Income Tax Effects on Salary Deductions in the Union Budget 2023

The Union Budget can impact income tax rates and the tax slabs applicable to various income groups, which in turn can affect the amount of tax deducted from employees' salaries.

  • 2,654 Views | Updated on: Mar 21, 2024

Key takeaways

  • One of the major changes in the budget is the introduction of new tax slabs to the new tax regime.
  • An increase in the standard deduction amount resulted in a reduction in taxable income and lower tax liability.
  • One of the most significant changes introduced in the budget is higher deduction limits for health insurance.

The Union Budget 2023 of India is an annual financial statement that outlines the government’s revenue and expenditure for the upcoming fiscal year. One of the key aspects of the budget is the changes made to the budget income tax structure, which has a significant impact on an individual’s salary deductions.

The government has announced measures aimed at boosting economic growth and creating jobs. At the same time, the government is also focusing on improving tax compliance and increasing revenue collection.

Changes in the income tax slabs or income tax deductions have a direct impact on the take-home pay of millions of salaried individuals in the country. Therefore, it is important to understand the potential implications of the income tax union budget 2023 on income tax and salary deductions.

Read ahead to know the top 4 income tax effects on salary deductions in the Union Budget 2023.

Standard Salary Deduction in Previous Budgets

Before it was eliminated in 2005, the basic salary deduction was historically a significant tax break accessible to salaried workers for years. The tax benefits previously available for the transit allowance (₹19,200) and reimbursement of medical expenditures were replaced in 2018 with a salary deduction of ₹40,000. (₹15,000). Thus, an additional ₹5,800 in taxes can be deducted.

In addition to lowering the tax burden on employees, this action helped the budget for 2018 by easing the burden of paperwork and compliance on firms. The tax exemption amount was raised to ₹50,000 once more in 2019.

Key Changes in The Salary Deductions Under Union Budget 2023

The Union Budget 2023 has brought significant changes in salary deductions, impacting the take-home pay of employees across various sectors. The budget aims to provide relief to the salaried class by introducing new income tax deductions, increasing standard deduction limits, and reducing the burden of health and education cess.

Additionally, it also proposes to change the calculation of taxable income, which may result in lower tax liability for many employees. These changes are likely to have a significant impact on the disposable income of employees, making it important for both employers and employees to understand their implications. This article will provide an overview of the key changes in salary deductions under the income tax union budget 2023 and their potential impact on the salaried class.

Introduction of New Tax Slabs

The Government of India has introduced income tax deductions and applicable rates in order to specify the rate at which income tax must be paid. Within a certain range, a predetermined rate of taxation is applicable, according to the income tax slab. The applicable income tax rate is identified and utilized to determine the taxpayer’s income tax due for the relevant fiscal year based on the income tax slab in which they are classified.

One of the key changes in the budget is the introduction of new tax slabs. The existing tax slabs have been in place for several years, and many believe that they do not adequately account for inflation and rising costs of living. Following is the comparison between the old slabs 2023 and the new slabs 2023.

Old Tax Slabs for New Tax Regime

Income tax slabs

Income tax rate

Up to ₹2,50,000

0%

₹2,50,001 - ₹5,00,000

5%

₹5,00,001 - ₹10,00,000

₹12,500 + 20%

Above ₹10,00,000

₹1,12,500 + 30%

New Tax Slabs for New Tax Regime

Income tax slabs

Income tax rate

Between ₹0 and ₹3,00,000

0%

Between ₹3,00,001 and ₹6,00,000

5%

Between ₹6,00,001 and ₹9,00,000

10%

Between ₹9,00,001 and ₹12,00,000

15%

Between ₹12,00,001 and ₹15,00,000

20%

Above ₹15,00,001

30%

Increase in the Standard Deduction

The standard deduction is a fixed amount that can be deducted from the gross salary before calculating the taxable income. According to the Union Budget 2023, the standard deduction for salaried individuals has been increased from ₹50,000 to ₹52,500. An increase in this amount resulted in a reduction in taxable income and lower tax liability.

Changes in Tax Exemptions

The budget has also changed the tax exemptions available to salaried individuals. From April 1, 2023, the basic income exemption limit will be ₹3 lakh. This limit was raised from ₹2.5 lakh to ₹5 lakh in Budget 2023.

Higher Deduction Limits for Health Insurance

One of the most significant changes introduced in the budget is higher deduction limits for health insurance. According to the Union Budget 2023, when the aggregate of premium life insurance policies (other than ULIP) issued on or after April 1, 2023, is more than ₹5 lakh, income from only those policies with aggregate premiums up to ₹5 lakh will exempt from the tax.

Conclusion

The income tax union budget of 2023 has brought significant changes, particularly with regard to salary deductions. These changes will impact the tax liability of individuals and provide them with an opportunity to plan their finances better. It is also essential for taxpayers to stay updated on budget announcements and consult with their financial advisors to make informed decisions about their investments and tax planning.

- A Consumer Education Initiative series by Kotak Life

Amit Raje
Written By :
Amit Raje

Amit Raje is an experienced marketer who has worked in various Fintechs and leading Financial companies in India. With focused experience in Digital, Amit has pioneered multiple digital commerce in India. Now, close to two decades later, he is the vice president and head of the D2C business department. He masters the skill of strategic management, also being certified in it from IIMA. He has challenged his challenges and contributed his efforts in this journey of digital transformation.

Amit Raje
Reviewed By :
Prasad Pimple

Prasad Pimple has a decade-long experience in the Life insurance sector and as EVP, Kotak Life heads Digital Business. He is responsible for developing user friendly product journeys, creating consumer awareness and helping consumers in identifying need for life insurance solutions. He has 20+ years of experience in creating and building business verticals across Insurance, Telecom and Banking sectors

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