No change in salary structure post-budget: Experts

At present, those with income up to Rs 5 lakh are exempt from paying income tax under both the old and the new regime.

During her Budget speech on February 1, Finance Minister Nirmala Sitharaman increased the income tax rebate limit available under the new tax regime to Rs 7 lakh. This means that under the new tax regime, come April 1, you will not have to pay tax for income up to Rs 7 lakh.

At present, those with income up to Rs 5 lakh are exempt from paying income tax under both the old and the new regime. Since the enhancement of the tax rebate limit, there has been much speculation about changes in the salary structure of employees across sectors.

However, industry experts have played down such concerns.

“I do not believe companies will tweak the pay structure of employees owing to the increase in tax rebate,” Balasubramanian A, VP and Business Head of staffing major TeamLease Services, told Moneycontrol.

For example, he said that a person with an annual income of Rs 7 lakh would now pay zero tax as against Rs 32,000 under the old regime.
“The whole point of the increase in rebate is to put more money in the hands of taxpayers,” Balasubramanian added.

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No change

The benefit of standard deduction has been extended to the salaried class and pensioners, including family pensioners, under the new tax regime. Salaried individuals and pensioners can claim a standard deduction of Rs 50,000, while pensioners can claim a deduction of Rs 15,000. A salaried person with an income of Rs 15.5 lakh or more will thus gain Rs 52,500, thanks to the enhanced limit.

Further, the highest surcharge rate for personal income tax has been reduced from 37 percent to 25 percent in the new tax regime for income above Rs 2 crore.

This would result in the maximum tax rate of personal income tax coming down to 39 percent from 42.74 percent earlier. The limit of tax exemption on leave encashment on retirement of non-government salaried employees has been increased from Rs 3 lakh to Rs 25 lakh.

"These changes may not necessarily require companies to alter their salary structures, as the tax slabs have changed and not the benefits around the salary components. In short, the structures will remain the same and the take-home salary will increase,” said Kunal Girap, Co-Founder and Director of WalkWater Talent Advisors.

Increased take home salary

In the 2023 budget, only the new tax regime was modified leaving the existing tax regime unaltered, said Santhosh Nair, Director & COO, CIEL HR. However, he said that compared to the previous regime, the new tax regime has fewer exemptions and deductions.

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“The choice between the two tax regimes is dependent on the investment decisions made by employees. The modifications to the salary structure are not anticipated to result in substantial differences for employees,” he added.

In fact, with the recent change, industry experts think employers would need to retain the salary structure as it is and give an option to the employees to choose between the two regimes.

“Therefore, even post the changes in the new tax regime, each employee would need to evaluate the tax liability under both the regimes and accordingly decide on the regime which is beneficial to the employee,” said Akhil Chandana, Partner at accounting firm Grant Thornton Bharat.