Salaried, pensioners to pay nil tax on income up to Rs 7.5 lakh in new tax regime

Indian Military Veterans

Post Budget 2023, salaried individuals and pensioners pay no tax on income upto Rs 7.5 lakh under the new tax regime. Budget 2023 proposes to increase rebate under Section 87A in such a way that taxpayers who earlier had to pay zero income on income up to Rs 5 lakh will now pay zero tax for income up to Rs 7 lakh. What it means that the quantum of maximum rebate under 87A rebate has been hiked from Rs 12500 to Rs 25000 under the new tax regime to make tax liability as Nil for the income tax payer with income up to Rs 7 lakh.

Additionally, Budget 2023 has extended standard deduction of Rs 50,000 to the above category of people in the new tax regime. Earlier, standard deduction was available only to salaried and pensioners opting for the old tax regime.

 a result of the deduction and rebate besides the tweak in income tax slab individual taxpayers like salaried, pensioner and family pensioners will now be able to pay zero tax if their annual income is Rs 7.5 lakh.

Zero tax at Rs 7.5 lakh income under new regime

Income from salary	750000
Less Standard deduction	50000
Net Taxable Income	700000
Tax payable	25000
Less 87A rebate	25000
Final tax payable	0

Though government had kept the tax rate low in lower income tax brackets of the new tax regime however very few people opted for the new tax regime. This is because salaried people with income upto Rs 7.5 lakh had to pay zero tax under old regime if they were eligible for few popular deductions such as Rs 50000 standard deduction, Rs 1.5 lakh under section 80C and Rs 50,000 on NPS under section 80CCD(1B) or Rs 25000 to Rs 1 lakh under section 80D. So if you used Rs 2.5 lakh of deduction with various combination your net income came below Rs 5 lakh and with 87A rebate you ended up paying nil tax.

On the other hand, under the new tax regime people had to pay taxes on income above Rs 5 lakh as there was no exemption or deduction. This push from Rs 5 lakh to Rs 7 lakh income with additional 87A rebate in the new tax regime will make it attractive for many salaried taxpayers with income up to Rs 7.5 lakh when taking together with Rs 50,000 standard deduction. However for non salaried taxpayers income up to Rs 7 lakh will result in nil tax payment.

Moreover, in absence of many deduction and exemption the tax filing will be much simpler.

However, if you are expecting your income to go up in coming years and there is likelihood of utilising the deductions and exemptions under the old regime then you may have to go for old regime again. Do remember that if you are a salaried person and do not have any business income the current tax law allows you to change your tax regime every year.