Union Finance Minister Nirmala Sitharaman on Wednesday (February 1) will present the Budget 2023 and as always the people of India are waiting to see what Centre is planning to allocate the funds in different sectors. Budget 2023, which is also formally known as Annual Financial Statement is expected to provide relief to the middle class while setting India on course to becoming a $26 trillion economy by 2047. While the next budget most likely will be worth more than that of 2022 (Rs 39.45 lakh crore), here is a look at a change in Income Tax Slab can bolster PM Modi's and India's ambitious US$5 trillion economy ambition
Income Tax Slab
When it comes to the Union Budget, common people, businessmen, and industries keep an eye on the income tax slab rates. In India, the income tax department imposes taxes on individual taxpayers based on a slab system. The slab system indicates the different tax rates for different ranges of income. The taxpayers have to pay taxes to the government based on the income slab they are part of. The tax rates go up with an increase in income. The government operates on the basis of this slab system to ensure that the individual is paying a fair share of tax based on their income. Based on their age, the Government of India has divided taxpayers into three categories-
Individuals (aged less than 60 years) including residents and non-residents
Resident Senior citizens (60 to 80 years of age)
Resident Super senior citizens (aged more than 80 years)
Notably, in India, there are two types of tax regimes- Old Tax Regime and New Tax Regime
The old tax regime taxed citizens
Less than Rs 2.5 lakh - Nil
Rs 2.5 lakh to Rs 5 lakh - 5% (rebate applicable)
Rs 5 lakh to Rs 7.5 lakh - 20%
Rs 7.5 lakh to Rs 10 lakh - 20%
Rs 10 lakh to Rs 12.5 lakh - 30%
Rs 12.5 lakh to Rs 15 lakh - 30%
Over Rs 15 lakh - 30%
It is pertinent to mention here that in 2020, the Centre introduced the new tax regime for the subsequent financial year.
Budget should allocate funds on R&D to develop pesticides, organic manure
The new tax regime and taxed citizens
Less than Rs 2.5 lakh - Nil
Rs 2.5 lakh to Rs 5 lakh - 5% (rebate applicable)
Rs 5 lakh to Rs 7.5 lakh - 10%
Rs 7.5 lakh to Rs 10 lakh - 15%
Rs 10 lakh to Rs 12.5 lakh - 20%
Rs 12.5 lakh to Rs 15 lakh - 25%
Over Rs 15 lakh - 30%
The transition from the old tax regime to the new tax regime came with certain conditions. To opt for the new tax rates, a taxpayer has to let go of certain exemptions and deductions available in the old regime. Some such exemptions included leave travel allowance, house rent allowance, and conveyance allowance.
Now, coming to the expectations from the Budget 2023 in Income Tax Slab, Deloitte India Survey report stated that, "The highest tax rate of 30 percent should be reduced to 25 percent. The threshold limit for the highest tax rate should be increased from ₹ 10 lakh to ₹ 20 lakh." Deloitte India further suggests that to support India’s US$5 trillion economy ambition, the industry holds high expectations from the Budget 2023-24 especially promoting ease of doing business through tax reforms and continued CAPEX with a focus on infrastructure.
It is pertinent to mention here that tax slabs and tax rates have remained constant for a long time now. A new tax regime was introduced in Budget 2020 with lower tax rates if one forgoes certain deductions and exemptions but there was no change in the regular tax rates for individuals. With increasing costs of living and interest rates on loans on the rise, a relaxation in the income tax rates for individuals would be a welcome measure to restore purchasing power of individuals.
As per reports, the highest effective income tax rate in India, including surcharge and cess, stands at 42.744%. The tax rate is much higher than that of other countries in the region - Hong Kong at 17%, Singapore at 22% and Malaysia at 30%. Moderation of individual tax rates in India would also make the country more attractive for individuals in the region and would prevent the flight of capital abroad.
The survey suggested that the government could consider increasing the threshold for the highest tax rate from Rs 10 lakh to Rs 20 lakh, and reduce the highest tax rate from 30% to 25%, to bring it on par with the general income tax rate applicable to companies.