The Centre is considering a significant rise in exemption rates in the old income tax regime in the interim Budget, aiming to benefit those with lower incomes, as per sources cited in a report by Business Standard. This may involve extending income tax exemptions up to Rs 7 lakh and introducing additional support for women farmers.
The projected fiscal deficit numbers for the government will remain unaffected by the introduction of new measures and improvements to the direct tax system, according to the report. Last year, FM Sitharaman had stated that the February Interim Budget won't feature any 'spectacular announcements,' reserving significant changes for the full Budget in July after the Lok Sabha elections.
In the past few years, the Finance Minister implemented various income tax-related rules, like introducing an optional simplified income tax regime in 2020-21 with reduced tax rates and fewer exemptions. In the FY23 Budget, FM Sitharaman made substantial changes, making the New Tax Regime the default option and enhancing incentives, including a total tax rebate of up to Rs 7 lakh, up from Rs 5 lakh in the Old Tax system.
Rahul Charkha, Partner, Economic Laws Practice said, "The present tax slabs under the old tax regime were introduced by Late Pranab Mukherjee vide Finance Act, 2013 wherein the basic exemption limit was Rs 2 lakhs. Subsequently, in 2015 the basic exemption limit was increased to INR 2.5 lakhs which has been consistent till now. Tax rate for income bracket between 2.5 to 5 lakhs was further reduced in 2018 from the existing 10% to 5%. Vide interim Finance Act, 2019 (No. 1), a rebate of INR 12,500 was introduced for persons having total taxable income up to INR 5 lakhs. As a result, persons earning income up to INR 5 lakhs had no income tax liability. However, the moment the taxable income of a person crossed the threshold limit of INR 5 lakhs, his tax liability increased by a whooping INR 13,000 (tax + cess)."
He further suggested, "The Government may think about revising the tax slabs under both the regimes. Along with the basic exemption, the limit for rebates should also be increased. The Government should also consider reducing the rate of surcharge."
