The income tax (IT) cuts and slabs proposed in Budget-2023 have come as a pleasant surprise for the salaried class. This move had eluded them ever since the BJP-led dispensation wrested power in 2014. The denial had been pinching them hard, given the spiralling cost of living and inflation. The bigger slices of salaries ending up in the hands of the middle class should enhance their spending power and propel the economy forward.

However, the catch is that these proposals are applicable only to those opting for the new tax regime which was introduced in 2021, even as the old one has also continued. The plus point of the old system is the offering of tax deductions for such investments as insurance, PF and mutual funds, HRA, house/education loan, donations, etc. While the new tax regime does not offer this advantage, its allure lies in its lower tax rates imposed on comparable income slabs. Thus, being beneficial selectively, the new scheme has not enticed many taxpayers. The IT rejig is partly aimed at course correction.

So, who should opt for what? After considering the basic exemption limit which has been hiked to Rs 3 lakh from Rs 2.5 lakh, the employees who should definitely go for the new tax regime are those earning up to Rs 7 lakh for they are fully exempt from tax as compared to the Rs 5-lakh limit for nil tax in the old scheme. With its lower tax rates for the other income slabs below Rs 15 lakh, the new taxation method should also appeal to workers hard-pressed to make tax-saving investments. But those going for such savings will have to, as per their investment capacity, calculate and weigh which of the two schemes leaves them with more salary in hand. For those earning over Rs 15 lakh, the FM has offered in the new scheme a standard deduction of Rs 52,500; and a reduction in highest surcharge rate from 37% to 25%, substantially benefiting the ultra-rich. Laudably, there’s a bonanza for retiring private sector employees: a hike in tax exemption on leave encashment on retirement to Rs 25 lakh from Rs 3 lakh. Every penny counts!