In a significant trend observed during the ongoing financial year 2023-24, a growing number of taxpayers are showing enthusiasm for the newly introduced tax regime.
The key attraction lies in its provision of exempting income up to Rs 7 lakh.
According to recent reports, approximately 5.5 crore taxpayers have eagerly adopted the new system, with a majority of these taxpayers having an annual income within the Rs 7 lakh bracket.
Government Official’s Perspective
A senior government official highlighted the unsurprising nature of the trend, stating, “The preference demonstrated by 5.5 crore taxpayers for the new tax system is quite understandable.
Even individuals earning between 7.5 to 8 lakh or even 10 lakh annually are gravitating towards a simplified income tax structure.”
Budget 2023-24 Brings Tax Relief
Finance Minister Nirmala Sitharaman, in the budget announcement for the fiscal year 2023-24, has introduced a notable relief in income tax for taxpayers.
While no alterations have been made to the existing tax system, the new tax regime stands out due to its heightened exemption limit of Rs 7 lakh—an increase from the previous Rs 5 lakh.
Effectively, individuals earning up to Rs 7 lakh annually will be entirely exempt from paying any income tax.
Enhanced Relief Measures
Additionally, as stipulated by the Finance Act of 2023, the government has extended further relief amounting to Rs 27,000.
This implies that individuals with a total income of up to Rs 7.27 lakh can enjoy tax-free status.
Flexibility for Taxpayers
The senior official also pointed out that taxpayers who may later find the old tax system more advantageous are not bound by their initial choice.
They retain the option to switch back to the previous system. The precise figures detailing the extent of adoption of the new tax regime in the current fiscal year will be ascertainable during the subsequent assessment year (2024-25).
Diverse Taxpayer Profiles
As per data furnished by the Income Tax Department for the year 2023, approximately 4.84 crore taxpayers reported an income of up to Rs 5 lakh.
Meanwhile, 1.12 crore taxpayers fell within the taxable income range of Rs 5 lakh to Rs 10 lakh.
The report also indicated that 47 lakh taxpayers earned between 10 to 20 lakhs, with 20 lakh taxpayers in the income range of 20 to 50 lakhs.
Furthermore, 3.8 lakh taxpayers had earnings between 50 lakh and 1 crore, while 2.6 lakh taxpayers declared an income exceeding Rs 1 crore.
Tax Structures Demystified
Under the new tax regime, incomes up to 7.27 lakhs remain tax-free, though other exemptions are not available.
In contrast, the existing system exempts income up to 2.5 lakhs and permits deductions based on investments and other eligible expenses, as outlined by the Income Tax Act.