Income Tax Slabs 2023-24 Explained

Nirmala Sitharaman has published the Union Budget 2023-24, and the new income tax slabs have put everyone in a twist. So what better time to push out an article outlining all the changes that the latest budget brought?

The new tax regime was introduced for the Financial Year 2020-21 to bring uniformity to the direct taxation system. The older regime allowed for multiple deductions and had lesser tax slabs. The new tax regime removes almost all deductions available while providing taxpayers with more bifurcated tax slabs.

While the common Indian mentality is to jump on the new shiny object as quickly as possible, the new regime had some trouble gaining the favour of the masses. With the changes brought to the new regime for Union Budget and how the historical (or old) regime remained untouched, it would be safe to assume that the government wants people to switch to the new regime.

So enough dangling the prize, let us get to the new tax regime for FY 2023-24!

Rebate u/s 87A

The Budget 2023 opened a whole box of questions in the taxpayers’ minds, and those questions were promptly brought to us. Here’s a list of the questions relating to the rebate:

1. No Tax on income up to 7 lakh?
While we were covering the budget, the first line of the tweet pretty much covered around 50% of the question we received as soon as the news dropped. So here is a little breakdown of how the new rebate works by yours truly and our Bossman!

The new rebate limits have increased in the following ways:

• The income up to which the rebate shall be applicable has gone from ₹5 lakh to ₹7 lakh.
• The amount of rebate that can be availed by an individual has doubled as well, going from ₹12,500 to ₹25,000.

Another question immediately after the last one was:

2. Why not just exempt income up to ₹7 lakh per annum if it essentially becomes tax-free through rebates?

Income between ₹3 lakh and ₹7 lakh will still attract taxes because as soon as an individual crosses the ₹7 lakh mark, the income from lower brackets shall also become taxable.

And, of course, good things come in threes, so the last central question about the rebate was:

3. Why charge the tax if it would be refunded anyway?

Well, the tax is calculated in reference to your income and acts as a liability to you. There is no physical transaction where your money goes out and is then sent back.
The tax calculation is for mere adjustment purposes, with the rebate immediately knocking the amount payable to zero as long as your income remains within the rebate limit (₹7 lakh in this case).

With the topic of the rebate out of the way, let us now see how much you can save on tax following the various regimes.

Difference between Old and New regime taxation

Taxpayers are allowed the choice between the new and old tax regimes, and the average Indian is left wondering, “Which one works for me?” Well, fret not, dear reader. Here is a quick breakdown of various income slabs and the effect of the different regimes on them.

We will scale from the smaller income level to reach a max income of ₹20 lakh per annum.

Income of ₹5 lakh per annum:

Under the old regime and the post-budget version of the new regime, this income will remain tax-free as taxpayers can claim a rebate of ₹12,500 under the old regime on their income from ₹2.5 lakh to ₹5 lakh.
Under the post-budget regime, income up to ₹3 lakh will be exempt. On the remaining ₹2 lakh, ₹10,000 will be the tax liability which can be removed by claiming the same rebate.

Income of ₹7 lakh per annum:

For an income of ₹7 lakh, under the old regime, the income up to ₹5 lakh becomes taxable too. The tax breakdown looks something like this:
Taxable Income= 7,00,000 - 50,000(standard deduction)= ₹6,50,000
₹2.5 lakh-₹5 lakh @ 5%= ₹12,500
₹5 lakh to ₹6.5 lakh @ 20%= ₹30,000
Total tax liability= ₹42,500 + 4% cess= ₹44,200

Under the new regime, income up to ₹7 lakh becomes tax-free as per the calculations in this tweet.

Income of ₹10 lakh per annum:

Under the old regime, an income of ₹10 lakh would be taxed in the following way:
Taxable Income= 10,00,000 - 50,000 (standard deduction)= ₹9,50,000
₹2.5 lakh-₹5 lakh @ 5%= ₹12,500
₹5 lakh to ₹9.5 lakh @ 20%= ₹90,000
Total tax liability= ₹1,02,500 + 4% cess= ₹1,06,600

Under the new regime, too, an income of ₹10 lakh would be subject to a standard deduction of ₹50,000. The tax breakdown would be as follows:
₹3 lakh to ₹6 lakh @ 5%= ₹15,000
₹6 lakh to ₹9 lakh @ 10%= ₹30,000
₹9 lakh to ₹9.5 lakh @ 15% = ₹7,500
Total tax liability=  ₹52,500 + 4% cess = ₹54,600

Income of ₹20 lakh per annum:

Similar to the previous case, a standard deduction of ₹50,000 would make the taxable income ₹19,50,000, which would be taxed as follows:
₹2.5 lakh-₹5 lakh @ 5%= ₹12,500
₹5 lakh to ₹10 lakh @ 20%= ₹1,00,000
₹10 lakh to ₹ 19.5 lakh @ 30%= ₹2,85,000
Total tax liability= ₹3,97,500+ 4% cess= ₹4,13,400

Under the post-budget new regime, ₹20 lakh would lead to a taxable income of ₹19,50,000 as the new regime allows for a standard deduction of ₹50,000. This taxable income will attract the following levies:
₹3 lakh to ₹6 lakh @ 5%= ₹15,000
₹6 lakh to ₹9 lakh @ 10%= ₹30,000
₹9 lakh to ₹12 lakh @ 15% = ₹45,000
₹12 lakh to ₹15 lakh @ 20% = ₹60,000
₹15 lakh to ₹19,50,000 @ 30% = ₹1,35,000
Total tax liability=  ₹2,85,000 + 4% cess = ₹2,96,400

The deductions u/s 80C were not included for all of the above cases due to their various personalised applications. However, if the deductions were claimed (only possible under the old regime), the tax implications would be as follows:

The ₹52,500 confusion

A major storm of confusion brewed up as the FM declared a ₹52,500 standard deduction on income equal to or above ₹15.5 lakh. Most laymen and everyday listeners made one of the following assumptions:

• A new standard deduction was introduced to the new tax regime, which would allow people with an income equal to or above ₹15.5 lakh to reduce their taxable income by ₹52,500.
• The standard deduction of ₹50,000 from the old tax regime was brought into the new tax regime for all income levels below ₹15.5 lakh and an additional deduction of ₹2,500 was provided to income levels equal to or above ₹15.5 lakh.

The reality of the whole situation turned out to be that the ₹52,500 were the total benefits people with income equal to or above ₹15.5 lakh would receive on switching to the new tax regime.

So much confusion… all because of poor phrasing. 🙄

The Bottom Line

The decisions made by the budget affected the masses greatly. The event might not garner a holiday, but it is observed throughout the nation with much fervour as everyone waits to see how their station in life is affected.

The change in tax slabs and their rates brings significant developments to tax planning going ahead. Watch out for an article that covers the ideal scenario with much deeper calculations.