• Notification Date: 18-01-2024
• Notification No: N/A

Interim Budget 2024: Govt to revise Tax Exemption in Lower Bracket from Old Tax Regime

Union Finance Minister Nirmala Sitharaman may introduce some additional tax waivers or exemptions at the lowest level valid only for the Old Income Tax regime in the upcoming Interim Budget, to be presented on February 1, a senior government official reported. The new measures will include an extension of the income tax exemption rates close to Rs 7 lakh and additional measures for women farmers. 

The new measures, along with announcements to improve the direct tax system, will not hurt the government's fiscal deficit numbers as projected.  

It is noteworthy that FM Sitharaman has already said that the Interim Budget in February will be devoid of any "spectacular announcements". The full Budget will be presented in July after the Lok Sabha elections. Hence, the expectations of any significant changes are low.  

The finance minister in the last three to four years has introduced many income tax-related rules for the taxpayers. In 2020-21, the finance ministry introduced an optional simplified income tax regime where the tax rates were reduced significantly, and the opportunities for exemptions also came down. 

In Budget FY24, FM Sitharaman made bigger changes and introduced the New Tax Regime as the new default option. She added to the incentives to support the new tax regime, including a total tax rebate of up to Rs 7 lakh, which was Rs 5 lakh under the Old Tax system. 

"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)," said Rahul Charkha, Partner, Economic Laws Practice. 

He added: "The Government may think about revising the tax slabs under both the regimes. Along with the basic exemption, the limit for rebate should also be increased. The Government should also consider reducing the rate of surcharge."