There are many changes in the income tax rules effective from this fiscal year. Changes in the income tax slabs to tax rebate limit raised, the absence of LTCG tax benefits in certain debt mutual funds are some of the main changes that will take effect from April 1, 2023.
1) The new income tax regime to be default regime
As of April 1, 2023, the new income tax system will act as the default tax system. Tax assessors will still be able to choose from the prior regime. Salary and pensioners: The standard deduction under the new system for taxable income above Rs 15.5 is Rs 52,500. In the 2020-21 budget, the government introduced a voluntary income tax system, under which Hindu Undivided Individuals and Families (HUF) are taxed at lower rates if they do not benefit from specific exemptions and deductions, such as Home Rental Allowance (HRA), interest on mortgages and investments made, is made in accordance with articles 80C, 80D and 80CCD. Because of this, the total income up to Rs 2.5 lakhs was exempt from tax.
ii) Tax rebate limit raised to Rs 7 lakh
The enhancement of the tax deduction limit to Rs 7 lakh from Rs 5 lakh means that a person with an income of less than Rs 7 lakh does not need to invest anything to claim the exemptions and all income will be exempt from tax regardless of the amount of investment made by such individual.
3) Standard deduction
There are no changes in standard deduction of Rs 50000 offered to employees under the old tax regime. For pensioners, the Ministry of Finance announced the extension of the standard deduction benefit to the new tax system. Every salaried person with an income of Rs 15.5 lakh or more will benefit Rs 52,500.
4) Changes in income tax slabs
The new tax rates are
0-3 lakhs - none
3-6 lakhs - 5%
6-9 lakhs - 10%
9-12 lakhs - 15%
12-15 lakhs - 20%
Above 15 lakhs - 30%
Leave encashment for non-government employees is exempt up to a certain limit. This limit was Rs 3 lakh since 2002 and has now been increased to Rs 25 lakh.
6) There is no LTCG tax advantage on these mutual funds
Starting April 1, investments in debt mutual funds will be taxed as short-term capital gains. The measure would deny investors the long-term tax benefits that made such investments popular.
7) Market-linked Debentures (MLD)
Also, investing in market-linked Debentures (MLDs) post April 1 will be a short-term capital asset. With this, the grandfather of previous investments will come to an end and the impact on the mutual fund industry will be somewhat negative.
8) Life insurance policies
Income from life insurance premiums that exceed the annual premium of Rs 5 lakh would be taxable from the new financial year, i.e. from April 1, 2023. Finance Minister Nirmala Sitharaman, presenting the 2023 Budget also announced that the new income tax rule will not be taxable. To apply to ULIP (Unit Linked Insurance Plan).
9) Benefits to Senior Citizens
The maximum deposit for the Senior Savings Scheme will be increased to Rs 30 lakhs from Rs 15 lakhs.
The maximum deposit for the monthly income system will increase from 4.5 lakhs to Rs 9 lakhs for individual accounts and from 7.5 lakhs to Rs 15 lakhs for joint accounts.
10) Conversion of physical gold into an electronic gold receipt and not to attract capital gains tax
Introducing the 2023 budget, Sitharaman said there will be no capital gains tax if physical gold is converted to electronic gold receipt (EGR) and vice versa. This will be effective from April 1, 2023.
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