Gov may not tax up to Rs 7 lakh in old tax regime: Sources

• Follow

The upcoming interim budget, which will be presented on February 1st, might bring changes to the existing income tax system. Finance Minister Nirmala Sitharaman could propose some additional exemptions. As per sources, individuals could receive income tax exemptions of up to Rs 7 lakh, including additional measures for female farmers. A senior government official has stated that the new measures in the direct tax system will not have any impact on the government’s fiscal deficit target.

Finance Minister Sitharaman has already mentioned that no major announcements will be made in the interim budget for February. The full budget is expected to be presented in July after the Lok Sabha elections. It’s worth noting that over the past three to four years, several tax-related rules have been introduced. In 2020-21, the Finance Ministry had introduced an alternative income tax system, where tax rates were significantly reduced, and opportunities for exemptions also reduced. In the Budget 2024, Sitharaman made significant changes and introduced a new tax system as the default option. She also gave incentives to support the new tax system. It including a total tax exemption of up to Rs 7 lakh, which was Rs 5 lakh under the old tax system.

The current income slabs under the old tax system were introduced in the Finance Act of 2013, with a basic exemption limit of Rs 2 lakh. Subsequently, in 2015, the basic exemption limit was increased to Rs 2.5 lakh and has been in effect since then. After that, the tax rate for the income bracket between Rs 2.5 to 5 lakh was reduced from 10% to 5% in 2018. Individuals earning up to Rs 5 lakh were not liable to pay any income tax. However, as soon as a person’s taxable income exceeds the Rs 5 lakh threshold, their tax liability increases. According to sources, the government may consider modifying tax slabs under both systems.