Among the middle class, one of the proposals which have made the Union budget 2023 very prevalent is that the individuals and Hindu undivided families (HUFs) opted for the new regime in the Financial year 2023-24 and onwards including securing the yearly gross total income (GTI) with the limit of Rs 7 lakh does not need to pay any income tax, since they will be unable to claim Rs 25,000 rebate under Section 87A of the Income tax act.
But what does happen if a person makes only Rs 10 exceeding the yearly Rs 7 lakh GTI?
For instance – A is a salaried employee who used to work in M/s ABC Pvt Ltd, drawing a yearly salary of Rs 7,50,010 in the financial year 2023-24. Therefore post choosing his yearly GTI for the new regime and claiming the permissible deduction for the standard deduction of Rs 50,000 shall arrive at Rs 700,010.
The yearly GTI of A surpasses the rebate limit by only Rs 10 however he shall unable to claim the rebate of Rs 25000 under Section 87A, and his whole GTI of Rs 700,010 shall get taxable at the subjected income tax slab rates as per the latest regime. His liability of income tax for the same case shall come out at Rs 26000. Hence Rs 10 of the other income in surplus of Rs 7 lakh is been obligated to be paid Rs 26,000 by A as income tax.
Working out some more income levels to find the same strange contradictory situation, representing the law of degrading returns (see table).
| Income Tax (Under Section) (i) | NTR (New Tax Regime) Liability (ii) | Income Excess of INR 7 Lakh (iii) | Additional Tax Outflow (iv) = (ii) -(iii) |
|---|---|---|---|
| 7,00,000 | Nil When Claiming Tax Rebate U/S 87A | 0 | 0 |
| 7,00,010 | 26,000 | 10 | 25,990 |
| 7,01,000 | 26,104 | 1,000 | 25,104 |
| 7,05,000 | 26,520 | 5,000 | 21,520 |
| 7,10,000 | 27,040 | 10,000 | 17,040 |
| 7,15,000 | 27,560 | 15,000 | 12,560 |
| 7,20,000 | 28,080 | 20,000 | 8,080 |
| 7,25,000 | 28,600 | 25,000 | 3,600 |
| 7,29,000 | 29,016 | 29,000 | 16 |
As per the specified computations, it is precisely proved that the same strange making of the liability of income tax surpasses the amount of income made in surplus of Rs 7 lakh in the new tax regime that starts from the income level of Rs 700,005 and the same carried on to the level of income of Rs 7.29 lakh.
Learn that income until Rs 7,00,004 will be rounded off to Rs 7 lakh.
For preventing the same strange thing the finance ministry must carry an appropriate revision in the new regime in order to furnish the marginal relief to these individuals and HUFs maintaining their respective/ yearly GTIs varying from Rs 700,005 to Rs 7.29 lakh in the Financial year 2023-24 and onwards.
For the subject of reducing the salary, A would need to ask his employer so that the income post standard deduction would get rounded to Rs 7 lakh to pay zero amount as income tax.
At present, the marginal relief would be furnished to the assessee who secures a regular income less than the basic tax exemption limit of Rs 3 lakh in the new regime. Likewise, the marginal relief would have been furnished for the situation of the relevance of the surcharged for incomes more than Rs 50 lakh and Rs 1 cr, respectively.
Important: What is the Reality of New Income Tax Regime for Taxpayers?
Hence drawing an identical provision of the marginal relief for these assessees who have yearly gross total incomes standing at Rs 700,005 and upto Rs 7.29 lakh and choosing the new tax regime shall amend the above strange anomaly, the thing that on the income levels ranging between Rs 700,005 and upto Rs 7.29 lakh, the liable income tax needed to pay shall get restricted to the income that surpassed Rs 7 lakh only and not more than that.
