Tax relief in the Finance Bill for people earning little over Rs 7 lakh

People with incomes just above the Rs. 7 lakh threshold for which they are not subject to tax are only required to pay taxes on the difference in income.

The Finance Bill was revised by the government and passed in the Lok Sabha on Friday, providing respite to taxpayers considering a new tax system.

The finance ministry explained the clause, stating that under the new tax law, which went into effect on April 1, if a person has an annual income of Rs 7 lakh, they pay no tax. However, if the person earns Rs 7,00,100, they must pay Rs 25,010.

Consequently, a 100 rupee increase in income results in a 25,010 rupee tax.

Therefore, marginal relief is suggested so that the amount of tax paid cannot exceed the amount of income that surpasses Rs 7 lakh (in this case, Rs 100), according to the government.

Sandeep Jhunjhunwala, a partner at Nangia Andersen LLP, explained that the amendment to the Finance Bill proposes a deduction of income tax due in excess of the difference income over Rs 7 Lakh in order to give a marginal relief to individual taxpayers with borderline income.

Jhunjhunwala continued, ‘Doing the math, an individual with income up to (approximately) INR 7,27,700 could stand to benefit from this marginal relief.’

The tax refund, which would have eliminated taxes for persons with yearly incomes up to Rs 7 lakh under the new tax system, was announced in the budget for 2023–24. The move, in the opinion of experts, was intended to compel the salaried class of taxpayers to migrate to a new tax system without investment exemptions.

For income up to Rs 3 lakh, no tax would be assessed under the newly revised tax system. Income between Rs. 3-6 lakh would be taxed at a rate of 5%; Rs. 6-9 lakh at a rate of 10%; Rs. 9-12 lakh at a rate of 15%; Rs. 12-15 lakh at a rate of 20%; and Rs. 15 lakh and above at a rate of 30%. In addition, a Rs 50,000 standard deduction was allowed under the new regime.

The Finance Bill 2023 has now been amended by the government, providing ‘marginal relief’ to taxpayers with yearly incomes little above Rs 7 lakh.

Tax experts noted that according to calculations, individual taxpayers with income of Rs 7,27,777 would benefit from this relief, despite the fact that the government has not indicated the income threshold that would be eligible for marginal relief.