The Union Minister of Finance and Corporate Affairs Smt. Nirmala Sitharaman announced significant amendments to tax rules applicable to individuals for the FY 2023-24. The ten major changes are hereunder.
- Tax rebate up to Rs.25000/-under section 87A allowed under the new tax regime:
This time the Government offers certain concessions to those individuals who opt for the new tax regime. A tax rebate of up to ₹ 25,000 under section 87A is allowed to the new tax regime assessee whose income is within ₹.7 lakhs after standard deduction and he will not have to pay any tax. Earlier standard deductions were earlier allowed only under the old regime, this time standard deductions to the salaried class and pensioners were also allowed in the new tax regime. The enhancement of the tax rebate limit to ₹7 lakhs from ₹5 lakh means that the person whose income is less than ₹7 lakhs need not invest anything to claim exemptions and the entire income would be tax-free irrespective of the quantum of investment made by such an individual.
- Changes in Income Tax slabs:
The new tax regime offers six tax slabs, with zero tax for income up to ₹3 lakh. New tax slabs are as under.
From ₹ 3,00,001 to ₹ 6,00,000: 5%
Above ₹600000 to ₹ 900000: 10%
Above ₹900000 to ₹1200000:15%
Above ₹1200000 to ₹1500000: 20%
Above ₹ 15,00,000: 30%
- New income tax regime will be the default regime in FY2023-24.
Before listing out the new slabs in the budget 2023, the finance minister announced that the Old Tax Regime will only be available on request now, and what was known as the New Tax Regime so far will thus be considered the default regime. The taxpayers can choose the regime while filing income tax returns. Tax assessors will still be able to choose from the prior regime. Starting, 1 April 2023.
- Standard deduction:
Benefit of standard deduction available under old tax regime is now extended to tax payers under new tax regime for FY 2023-24.No change in standard deduction of ₹50000 provided to employees under old tax regime.
- Tax on Leave encashment increased:
The limit of Rs.3 lakh for tax exemption on leave encashment on separation from employer of non-government salaried employees has been increased to Rs.25 lakh in Budget 2023. The separation from the employer means resignation, retirement, or any other event where a person leaves his/her job. This limit was Rs.3 lakh since 2002 and is now increased to Rs.25 lakh owing to the general increase in income from salary.
- No LTCG tax benefit on Debt Mutual Funds:
From April 1, investments in debt mutual funds will be taxed as short-term capital gains. The move would strip investors of the long-term tax benefits that had made such investments popular.
- End of tax arbitrage for Market Linked Debentures (MLDs):
Budget 2023 seeks to insert a new section 50AA in the Act to provide that irrespective of the holding period, gains from Market Linked Debentures (MLDs) shall be taxable as short-term capital gains (STCG) at applicable rates. Hence, investment in Market Linked Debentures (MLDs) post-April 1 will be short-term capital assets. With this, grandfathering of earlier investments will end and the impact on the mutual fund industry will be slightly negative. Market Linked Debentures (MLD) are a type of non-convertible debt instrument wherein the returns are determined by the performance of their underlying indexes like Government yield, equity indexes, etc. There is no regular coupon pay-off and the returns are paid at the time of maturity.
- Tax exemption limit on Life Insurance policies:
For life insurance policies issued on or after 1 April 2023, the tax exemption on maturity benefits under Section 10(10D) will only be applicable if the aggregate annual premium paid by an individual is up to ₹. 5 lakhs. The above rule won’t be applicable to ULIP (Unit Linked Insurance Plan).
- Enhancement of deposit limit under SCSS and Monthly income schemes:
The maximum deposit limit for the senior citizen savings schemes will be increased to ₹30 lakhs from ₹15 lakhs. The maximum deposit limit for Post Office monthly income scheme will be increased to ₹9 lakhs from 4.5 lakhs for single accounts and ₹15 lakhs from ₹7.5 lakhs for joint accounts.
- Physical gold conversion to e-gold receipt not to attract capital gains tax:
In order to encourage buying of electronic gold, the government announced that there would be no capital gains tax if physical gold is converted to an Electronic Gold Receipt (EGR) and vice versa. This will be effective from 1 April 2023.
Click the below post to know other concessions available both under old and new tax regimes