February 2023
Employment Tax
Impact: High
Key Proposals in Personal Tax Domain
The Hon’ble Finance Minister (FM) of India presented the Union Budget 2023 on 01 February 2023. The budget continues to focus on the Government’s agenda of simplified tax structure by reducing compliance burden, improving tax administration, promote the entrepreneurial spirit and provide tax relief to citizens. The FM indicated the Government’s intention of continuing improving the services to the taxpayers by rolling out a next-generation common Income Tax Return Form, by strengthening the grievance redressal mechanism, etc.
The budget 2023 has brought mixed bag of feelings for different class of taxpayers from personal tax perspective. The FM started her Budget Speech on personal income tax chapter with an acknowledgment of tax burden on middle class taxpayers and thereafter went towards the high-income earners. The budget has also focused on plugging of certain loopholes to curb the misuse of some beneficial provisions under the Income tax Act.
There are quite a few changes proposed by the FM in personal tax section, for the salaried employees, taxpayers having capital gain transactions, receipts from insurance companies, presumptive taxation, tax withholding rates (other than on salary), etc. However, here we are discussing a few of these changes in detail which may have an impact on the larger employee population.
Changes proposed in Tax Regime
By way of background, currently, there are two personal tax regimes, Old Tax Regime (OTR) and New Personal Tax Regime (NPTR), having its own income slab and tax rates along with certain prescribed terms and compliances for choosing either of the regime by the taxpayers (whichever is tax beneficial for them). The taxpayers are free to change the tax regime every year, subject to certain conditions, such as filing of tax return within the prescribed timelines, certain specific restrictions for the taxpayers having business income, etc.
Further, if the employer has withheld taxes on salary under any particular tax regime (on the request/ declaration of the employee), the employee can change the tax regime at the time of filing his personal tax return if the other tax regime is more tax beneficial to him/ her. The OTR is a default tax regime.
It has been proposed to make the NPTR as a default tax regime and certain changes in the income slab and tax rates have been proposed under the NPTR. There are no changes in the OTR.
Tax Rates under existing and proposed NPTR
| Existing NPTR | Proposed NPTR | ||
| Income (INR) | Tax Rates * | Income (INR) | Tax Rates * |
| 0 – 250,000 | – | 0 – 300,000 | – |
| 250,001 – 500,000 | 5.20% | 300,001 – 600,000 | 5.20% |
| 500,001 – 750,000 | 10.40% | 600,001 – 900,000 | 10.40% |
| 750,001 – 1,000,000 | 15.60% | 900,001 – 1,200,000 | 15.60% |
| 1,000,001 – 1,250,000 | 20.80% | 1,200,001 – 1,500,000 | 20.80% |
| 1,250,001 – 1,500,000 | 26.00% | 1,500,001 – 5,000,000 | 31.20% |
| 1,500,001 – 5,000,000 | 31.20% | 5,000,001 – 10,000,000 | 34.32% |
| 5,000,001 – 10,000,000 | 34.32% | 10,000,001 – 20,000,000 | 35.88% |
| 10,000,001 – 20,000,000 | 35.88% | 20,000,001 – 50,000,000 | 39.00% |
| 20,000,001 – 50,000,000 | 39.00% | Above 50,000,000 | 39.00% |
| Above 50,000,000 | 42.74% | ||
The tax rates under OTR are as follows (no changes proposed):
| Income (INR) | Tax Rates * |
| 0 – 250,000 | – |
| 250,001 – 500,000 | 5.20% |
| 500,001 – 1,000,000 | 20.80% |
| 1,000,001 – 5,000,000 | 31.20% |
| 5,000,001 – 10,000,000 | 34.32% |
| 10,000,001 – 20,000,000 | 35.88% |
| 20,000,001 – 50,000,000 | 39.00% |
| Above 50,000,000 | 42.74% |
* Tax rates including surcharge and education cess are mentioned
Currently, in case a taxpayer wants to opt for NPTR, he is required to notify his employer. Going forward, in case a taxpayer wishes to opt for OTR, whether he is required to notify the employer or not, needs further clarification from the tax department.
The impact of the above proposals through certain illustrations
Example – 1 Assuming salary income INR 900,000 and no exemptions are available except Standard Deduction
| Particulars | OTR | Proposed NPTR | |
| Salary break-up | Basic Salary | 500,000 | 500,000 |
| HRA | 250,000 | 250,000 | |
| Special Allowance | 150,000 | 150,000 | |
| Gross Salary Income (A) | 900,000 | 900,000 | |
| Less: deductions | Standard deduction | (50,000) | (50,000) |
| Professional Tax | – | ||
| Salary exemptions/deductions (B) | (50,000) | (50,000) | |
| Gross Taxable Income | Total Salary Income (A+B) | 850,000 | 850,000 |
| Gross Total Income | 850,000 | 850,000 | |
| Less: Deductions under Chapter VIA | 80C | – | |
| Total Deductions | – | – | |
| Taxes | Taxable income | 850,000 | 850,000 |
| Tax at slab rates | 82,500 | 40,000 | |
| Tax liability | 82,500 | 40,000 | |
| Add: Surcharge | – | – | |
| Add: Health & education cess | 3,300 | 1,600 | |
| Total Tax liability | 85,800 | 41,600 | |
| NPTR is beneficial tax regime in the above example | |||
Example – 2 Assuming salary income INR 1,300,000 and employee is eligible for certain deductions
| Particulars | OTR | Proposed NPTR | |
| Salary break-up | Basic Salary | 550,000 | 550,000 |
| House Rent Allowance | 275,000 | 275,000 | |
| Special Allowance | 475,000 | 475,000 | |
| Gross Salary Income (A) | 1,300,000 | 1,300,000 | |
| Housing rent exemption | (185,000) | ||
| Other Exempt Allowances | – | ||
| Less: Salary deductions | Standard deduction | (50,000) | (50,000) |
| Professional Tax | (2,500) | ||
| Salary exemptions/deductions (B) | (237,500) | (50,000) | |
| Gross Taxable Income | Total Salary Income (A+B) | 1,062,500 | 1,250,000 |
| Gross Total Income | 1,062,500 | 1,250,000 | |
| Less: Deductions under Chapter VIA | 80C for life insurance premium | (66,000) | |
| Total Deductions | (66,000) | – | |
| Taxes | Taxable income | 996,500 | 1,250,000 |
| Tax at slab rates | 111,800 | 100,000 | |
| Tax liability | 111,800 | 100,000 | |
| Add: Surcharge | – | – | |
| Add: Health & education cess | 4,472 | 4,000 | |
| Total Tax liability | 116,272 | 104,000 | |
| NPTR is beneficial tax regime in the above example. | |||
Example – 3 Assuming salary income INR 2,000,000 and certain eligible exemptions
| Particulars | OTR | Proposed NPTR | |
| Salary break-up | Basic Salary | 800,000 | 800,000 |
| HRA | 400,000 | 400,000 | |
| Special Allowance | 800,000 | 800,000 | |
| Gross Salary Income (A) | 2,000,000 | 2,000,000 | |
| Less: Salary deductions | Housing rent exemption | (400,000) | |
| Standard deduction | (50,000) | (50,000) | |
| Professional Tax | (2,500) | ||
| Salary exemptions/deductions (B) | (452,500) | (50,000) | |
| Gross Taxable Income | Total Salary Income (A+B) | 1,547,500 | 1,950,000 |
| Gross Total Income | 1,547,500 | 1,950,000 | |
| Less: Deductions under Chapter VIA | 80C for life insurance premium | (96,000) | |
| Employer contribution to NPS | (80,000) | (80,000) | |
| Total Deductions | (176,000) | (80,000) | |
| Taxes | Taxable income | 1,371,500 | 1,870,000 |
| Tax at slab rates | 223,950 | 261,000 | |
| Tax liability | 223,950 | 261,000 | |
| Add: Surcharge | – | – | |
| Add: Health & education cess | 8,958 | 10,440 | |
| Total Tax liability | 232,908 | 271,440 | |
| OTR is beneficial tax regime in the above example | |||
Example – 4 Assuming salary income of INR 60,000,000
| Particulars | OTR | Proposed NPTR | |
| Salary break-up | Basic Salary | 24,000,000 | 24,000,000 |
| HRA | 12,000,000 | 12,000,000 | |
| Special Allowance | 24,000,000 | 24,000,000 | |
| Gross Salary Income (A) | 60,000,000 | 60,000,000 | |
| Standard deduction | (50,000) | (50,000) | |
| Professional Tax | (2,500) | ||
| Salary exemptions/deductions (B) | (52,500) | (50,000) | |
| Gross Taxable Income | Total Salary Income (A+B) | 59,947,500 | 59,950,000 |
| Gross Total Income | 59,947,500 | 59,950,000 | |
| Less: Deductions under Chapter VIA | 80C | (150,000) | |
| Premium for medical insurance | (25,000) | ||
| Donations made | (300,000) | ||
| Total Deductions | (475,000) | – | |
| Taxes | Taxable income | 59,472,500 | 59,950,000 |
| Tax at slab rates | 17,654,250 | 17,685,000 | |
| Tax liability | 17,654,250 | 17,685,000 | |
| Add: Surcharge | 6,532,073 | 4,421,250 | |
| Add: Health & education cess | 967,453 | 884,250 | |
| Total Tax liability | 25,153,775 | 22,990,500 | |
| NPTR is beneficial tax regime in the above example | |||
Based on the above examples, it is clear that the taxpayer needs to evaluate which tax regime is beneficial to him/ her by comparing the tax rates, availability and quantum of exemptions/ deductions, etc. under both the regimes before taking any decision.
Enactment of the Budget 2023
The Finance Bill 2023 will now be presented before both the Houses of Parliament for their assent. After the Bill is passed from Lok Sabha, Rajya Sabha and it receives President’s approval for the enactment as Finance Act 2023.
Contact us
For a deeper discussion on the above, please reach out to your Vialto Partners point of contact, or alternatively:
Further information on Vialto Partners can be found here: www.vialtopartners.com
Vialto Partners (“Vialto”) refers to wholly owned subsidiaries of CD&R Galaxy UK OpCo Limited as well as the other members of the Vialto Partners global network. The information contained in this document is for general guidance on matters of interest only. Vialto is not responsible for any errors or omissions, or for the results obtained from the use of this information. All information is provided “as is”, with no guarantee of completeness, accuracy, timeliness or of the results obtained from the use of this information, and without warranty of any kind, express or implied, including, but not limited to warranties of performance, merchantability and fitness for a particular purpose. In no event will Vialto, its related entities, or the agents or employees thereof be liable to you or anyone else for any decision made or action taken in reliance on the information in this document or for any consequential, special or similar damages, even if advised of the possibility of such damages.
© 2023 Vialto Partners. All Rights Reserved.