March 14, 2023
Union Budget 2023 impact of income tax on salary deduction. With the presentation of the Union
budget for 2023, expectations among the salaried category are increasing. The rising cost of living and
rising inflation are already putting pressure on people's finances; now, recent layoffs in the tech sector
have created even more cause for concern.
As a result, more than 80 million taxpayers have had high hopes of a tax break through the government's higher standard deductions. This tax deduction is a flat deduction available to employees to achieve parity among different taxpayers.
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Here's what's in the 2023 budget for income tax provisions and deductions.
The standard deduction in previous budgets
Historically, the standard payroll deduction was a significant tax advantage available to salaried employees for years before it was removed in 2005. However, in 2018, the payroll deduction was Rs. 40,000 was repaid, replacing the tax benefits available for transportation allowance (Rs. 19,200) and reimbursement of medical expenses (Rs. 15,000). Therefore, resulting in an additional tax deduction of Rs. 5800.
In addition to reducing employee tax liability, this measure had a positive impact on the 2018 budget with the goal of reducing paperwork and the compliance burden for employers. Again, in 2019, the tax threshold was increased to Rs. 50,000.
The impact of the 2023 budget on income tax
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This year's budget saw massive changes to the current income tax structure, including a reduction in the number of income brackets to 5 and changes to tax rates. Here you will find everything you need to know about the revisions to the income tax rules and their impact.
1. Deduction from salary under the new tax system
Under the new tax regime, the tax exemption limit is now Rs. 3 lakhs and the system will reduce the income slabs from six to five. As a result, retirees and now salaried employees will benefit from a standard deduction above Rs. 52,500 for taxable income above Rs. 15.5 lakhs.
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2. Increase the tax deduction limit
With the changes in the income tax system, the budget also proposed an increase in the tax deduction limit of Rs. 5 lakhs to Rs. 7 lakhs. This is good news for people whose income is less than Rs. 7 lakhs as all their income will now be tax-free regardless of the investments they make. So they no longer have to search for investment schemes to claim tax exemption.
Thus, it will help increase disposable income and give greater consumption power to the middle-income group.
3. Reconsider tax rates
In the Union Budget 2023, Finance Minister Nirmala Sitharaman announced the reduction of the top tax rate to 39% from the previous 42.74%. In addition, the Secretary of State also proposed reducing the maximum surcharge rate from 37% to 25% under the new tax system. In this way, the growth of individual contributors is further encouraged.
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