The Indian Budget 2023-24: What It Means for Salaried Individuals

The recent Indian Budget 2023-24 has many exciting announcements for the hard-working middle class, including those who are salaried individuals. In this article, we'll take a closer look at the key changes and benefits for salaried people and how they can potentially save on taxes.

Tax Rebate: The Limit Has Been Increased

The first major announcement is related to the tax rebate. Previously, individuals with an income of up to ₹5 lakhs were not required to pay any income tax in both the old and new tax regimes. However, the budget has increased this limit to ₹7 lakh for individuals in the new tax regime, which means that individuals with an income up to ₹7 lakh will not have to pay any income tax.

Reduced Tax Slabs and Increased Tax Exemption Limit

In 2020, the government introduced a new personal income tax regime with six income slabs starting from ₹2.5 lakh. This year's budget has reduced the number of slabs to five and increased the tax exemption limit to ₹3 lakh. This means that individuals with an annual income of ₹3 lakh or less will not have to pay any income tax, while those earning between 

• 3 lakh to 6 lakh will pay 5% tax, 
• 6 lakh to 9 lakh will pay 10% tax, 
• 9 lakh to 12 lakh will pay 15% tax, 
• 12 lakh to 15 lakh will pay 20% tax, and 
• above 15 lakh will pay 30% tax.

Example: An individual earning ₹9 lakh per annum will now be required to pay only ₹45,000 in taxes, which is just 5% of their income, a 25% reduction from the current tax requirement of ` ₹60,000.

Standard Deduction for Salaried Individuals

Another exciting announcement for salaried individuals is the standard deduction benefit, which has been extended to the new tax regime. This means that each salaried individual with an income of ₹15.5 lakh or more will receive a standard deduction of ₹52,500, which will reduce their taxable income and help them save on taxes.

Example: If a salaried individual earns ₹20 lakh per annum, their taxable income will be reduced by ₹52,500, bringing their taxable income down to ₹17,47,500.

Reduced Surcharge for High-Income Individuals

The highest tax rate in India is currently 42.74%, one of the highest in the world. However, the budget has proposed a reduction in the highest surcharge rate from 37% to 25% in the new tax regime. This means that the maximum tax rate will be reduced to 39%.

Example: If a salaried individual earns ₹25 lakh per annum, their tax liability will be reduced from ₹10,59,000 to ₹9,75,000, a savings of ₹84,000.

Increase in Tax Exemption Limit for Leave Encashment on Retirement

The limit for tax exemption on leave encashment on retirement for non-government salaried employees was last fixed in 2002, when the highest basic pay in the government was ₹30,000 per month. This year's budget has proposed an increase in this limit to ₹25 lakh, keeping in line with the increase in government salaries.

Example: If a non-government salaried employee retires with a leave encashment of ₹30 lakh, they will not have to pay any tax on this amount, as it falls within the limit of ₹25 lakh.

To summarize the Personal Income Tax through an example:

Okay, let's imagine that a person named Manju has a job and gets paid money every month. The government has made a rule that says Manju has to give some of her money to the government every year. This is called paying taxes. But now, the government has made some changes to the rules about taxes that will help Manju save some money. 

Here's how: 

Manju can keep more money: The government has increased the amount of money that Manju can keep before she has to start paying taxes. So, if Manju earns up to 7 lakhs in a year, she won't have to give any money to the government for taxes. 

Less tax for Manju: Manju has to pay less tax than before. For example, if Manju earns 9 lakhs in a year, she used to have to give 60,000 to the government for taxes, but now she only has to give 45,000. 

Extra money for work: Manju gets extra money for doing her job because she gets something called a "standard deduction." This is a set amount of money that she can keep just for being a salaried person. If Manju earns 15.5 lakhs or more in a year, she can keep 52,500 extra just for doing her job. 

Less tax on retirement: If Manju retires one day, she will get money from her job, called "leave encashment." Before, if Manju got up to 3 lakhs, she wouldn't have to pay any taxes on it, but now she can get up to 25 lakhs without having to pay any taxes. 

So, in total, Manju can save a lot of money because of these changes to the tax rules. The government is giving her more money to keep, charging her less for taxes, giving her extra money for doing her job, and giving her a break on taxes when she retires.

Conclusion

In conclusion, the Indian Budget 2023–24 offers a number of proposals for tax relief for salaried people. Some of the important measures that are expected to help salaried persons are the implementation of a standard deduction, the lessening of the number of tax slabs, and an increase in the rebate ceiling. Salaried individuals can significantly minimize their tax obligation and grow their savings by adopting these approaches.

Smart investments are one efficient strategy for salaried individuals to lower their tax burden. For example, salaried individuals might save on taxes by investing in tax-saving instruments such as Public Provident Fund (PPF), National Pension Scheme (NPS), and Equity-Linked Savings Scheme (ELSS). Additionally, by making investments in health insurance, house loans, and charity donations, they can also benefit from tax benefits.

The different tax-saving options should be explored and leveraged to the fullest extent by those who earn a salary. Salaried people can drastically lower their tax liability and enhance their savings by combining their salary income with savvy investments.