Personal income tax slabs revised, standard deductions hiked 

Finance Minister Nirmala Sitharaman revises tax slabs, increases standard deductions, and introduces threshold for reporting movable assets.

Altering the structure for taxation of income under the new regime, Finance Minister Nirmala Sitharaman on Tuesday revised the tax slabs whilst retaining the erstwhile corresponding tax rates other than increasing the standard deductions. The present slab of ₹3-6 lakh, that is, the preliminary bracket liable to be taxed, would now be revised upwards to ₹3-7 lakh. However, the corresponding rate of taxation remains unchanged at 5%. No changes were however made for individuals with income of less than ₹3 lakh – who continue to draw no tax liability – the ₹12-15 lakh slab and for incomes exceeding ₹15 lakh.

Ms. Sitharaman held that because of the changes, a salaried employee now stands to save up to ₹17,500 in income taxes.

The standard deduction for salaried employees, enrolled under the next tax regime, too, has been increased to ₹75,000 from the current ₹50,000. Furthermore, she announced an increase in the deduction on family pension for pensioners from ₹15,000 to ₹25,000. The two measures combined, she stated, would provide relief to “about four crore salaried individuals and pensioners.”  

According to Deepashree Shetty, Partner at BDO India, who follows tax and regulatory services, the rejig in slabs was aimed at providing relief to middle-class taxpayers and to further promote the new tax regime. The Finance Minister had stated in her address that more than two-thirds of the taxpayers had availed the new regime in the previous fiscal year. 

Poorva Prakash, Partner at Deloitte India, who follows personal taxation, explained that the revision in tax slabs combined with increase in standard deduction would be beneficial for salaried employees. It would facilitate savings of about ₹17,500 on an income of ₹15 lakh, she observed. “This is a good amount [the savings] and also serves the primary objective of the new regime to push more disposable income,” she said. 

About the potential need for the revision in tax slabs, the Deloitte partner explained that taxpayers in the new tax regime cannot claim exemptions citing components as house rent allowances (HRAs), among other things. Therefore, the avenue for incentivisation is limited. Thus, the revision is tax slabs was explored in addition to the standard deduction for salaried individuals to spur their disposable income. 

Among other significant measures with respect to personal finance, whilst introducing measures to deepen the tax base, the FM proposed that not reporting movable assets of up to ₹20 lakh would not be liable for penalisation. Explaining the context, she stated that Indian professionals working in multinationals get ESOPs (employee stock ownership plan) and invest in social security schemes and other movable assets outside the country. She elaborated that not reporting such small foreign assets invited penal consequences. The introduction of the ₹20-lakh threshold thus proposed to address this paradigm.