Budget 2023: Top 5 announcements for the middle class

Finance Minister Nirmala Sitharaman's Union Budget 2023-24 made five major announcements for the middle class with respect to personal income tax. These announcements, from income tax rebate to leave encashment exemptions, will provide substantial benefits to the middle class. The budget proposed to make the new income tax regime as the default tax regime. However, citizens will continue to have the option to avail the benefit of the old tax regime. Let's take a look at what Budget 2023 proposed for the middle class.

1 | Finance Minister Nirmala Sitharaman proposed increasing the income tax rebate limit to Rs 7 lakh in the new tax regime. This means that under the new tax regime, 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 the old and new regimes.

2 | The government proposed a change in the new tax regime structure, by reducing the number of slabs to five and increasing the tax exemption limit to Rs 3 lakh. The new income tax rates are: tax on income up to Rs 3 lakh is nil, income between Rs 3 and Rs 6 lakh to be taxed at 5 percent tax, income between Rs 6 and Rs 9 lakh to be taxed at 10 percent tax, income between Rs 9 lakh and Rs 12 lakh to be taxed at 15 percent tax, income between Rs 12 lakh and Rs 15 lakh to be taxed at 20 percent, and income above Rs 15 lakh to be taxed at 30 percent. This will provide major relief to all tax payers in the new regime.

3 | Providing major relief to the salaried class and the pensioners, Sitharaman proposed to extend the benefit of standard deduction to the new tax regime. Each salaried person with an income of Rs 15.5 lakh or more will thus stand to benefit by Rs 52,500.

4 | With respect to personal income tax, the Finance Minister proposed to reduce the highest surcharge rate from 37 percent to 25 percent in the new tax regime for income above Rs 2 crore. This would result in reduction of the maximum tax rate to 39 percent from the present 42.74 percent, which is among the highest in the world. However, no change in surcharge is proposed for those who opt to be under the old regime in this income group.

5 | The Union Budget 2023 proposed extension of limit of tax exemption on leave encashment to Rs 25 lakh on retirement of non-government salaried employees in line with the government salaried class. At present, the maximum amount which can be exempted is Rs 3 lakh.