Budget 2023: The big picture of several changes made in income tax rules

There are many changes in income-tax rules.  This post analyses tax consequences on 15 key points on which tax policies are changed.  Let us see how these changes impact you.

• Now  Standard deductions on income-tax under available to both old and new regimes:

A standard deduction of Rs 50,000 to salaried individuals, and a deduction from family pension up to Rs.15000, is currently allowed only under the old regime. It is proposed to allow these two deductions under the new regime also.

• Rebate u/s 87A increased to Rs 25000 under the new tax regime:

In the Union Budget 2023, Finance Minister Nirmala Sitharaman announced that the rebate under Section 87A will be hiked from Rs5 Lakh to Rs7 Lakh. It means a tax rebate of Rs 25,000 under section 87A is available under the new tax regime (applicable for FY 2023-24) and persons in the new tax regime, with income up to ₹7 Lakh will not have to pay any tax. 

Any individual with an annual taxable income of up to Rs 5 lakhs was eligible for an income tax rebate of Rs12500 up to FY 2022-23, both under old and new tax regimes. Thus, the eligibility of tax rebates under the new tax regime where no tax payable up to the income of 7lakhs is not available to optees old tax regime. They can claim rebates under 87A under existing provisions.

•  Surcharge on income tax under both old and new regimes:

An income tax surcharge is an additional charge payable on income tax. As per the income tax laws, the levy of surcharge starts if an individual’s total income (after claiming eligible deductions and tax exemptions) exceeds Rs 50 lakh. If a taxpayer’s income is above 5 crores then he would now have to pay a reduced surcharge of 25% instead of the 37% earlier.

However, there are certain exceptions to the surcharge rates.  If an individual has earned income from capital gains (short-term or long-term) from the sale of equity shares and equity mutual funds or dividend income, the surcharge will not exceed 15%, irrespective of the income range. The revised surcharge at a rate of 15% on dividend income is applicable from FY 2023-24 (AY 2023-24). Also, it is proposed that the for those individuals, HUF, AOP(other than cooperative), BOI, and AJP under the new regime surcharge rate will be the same except that the surcharge shall be 25% for income above 2 crores. 

• The following income tax deductions are still available in the new regime:
•  Death-cum-retirement benefit,
• Commutated value of pensions,
• Amount received on VRS up to Rs 5 lakh,
• Employee Provident Fund money,
• Money received as scholarship for education,
• Cash received as awards constituted in the public interest,
• Short-term withdrawals and maturity amounts from the National Pension Scheme,
• The leave encashment is up to 10 months average salary for non-government employees is exempt up to a certain limit. This limit was 3 lakhs since 2002 and is now increased to 25 lakhs.

• Sending money abroad will burn a bigger hole in your pocket

TCS enhanced foreign remittances – the rate has increased from 5% to 20% without the ceiling of 7 lakhs. The TCS (tax collection at source) for overseas tour packages has been increased from 5 percent to 20 percent. This will hit the tour and travel.

• Increase of Senior Citizen Savings Scheme (SCSS) investment limit:

• The increase of the Senior Citizen Savings Scheme (SCSS) investment limit was raised to Rs 30 lakh from the present limit of Rs 15 lakh.

• Increase of POMIS-Post office Monthly Income Scheme limit:

 POMIS-Post office Monthly Income Scheme limit raised to Rs9 lakh ( from Rs 4.50 Lakh)per individual. The joint account limit rose to Rs15 lakh from Rs9 Lakh.

• Mahila Samaan Saving Certificate:

Mahila Samaan Saving Certificate” for Women and Girls Offered for 2 Years with a 7.5% Interest Rate

•  Capping of deductions from capital gains u/s 54, 54F:

Finance Minister Nirmala Sitharaman on Wednesday recommended capping the deduction from capital gains on residential property investment under sections 54 and 54F at RS 10 crore. The new provision seeks to prevent huge deductions claimed by high-net-worth assesses after purchasing very expensive residential houses. The limit of Rs 10 crore on the cost of new residential property to claim long-term capital gains exemption shall impact HNIs who avail large capital gain exemption on account of high-value purchase.”

1. Capital gain tax on transfers/redemption/maturity of market-linked debentures :

As per the proposed new section (50AA), the capital gains from transfers/redemption/maturity of market-linked debentures are proposed to be treated as a short-term capital gain.

• Inclusion of gambling or betting of any form or nature (online games) within the scope and section 194BA:

It is proposed to amend section 194B and section 194BB  (income from lottery or crossword puzzle and horseracing respectively)of the act to provide that the TDS should be deducted on the amount or “aggregate of the amount (currently the section only states amount) exceeding Rs.10000/- in a financial year. Additionally, it is proposed to include “gambling or betting of any form or nature” within the scope and section 194BA is proposed to be introduced for online games.

• Tax on the sum received where premium payable on insurance policy exceeds Rs5lakh at any of the years:

Sum received (except in case of death of the insured person) from an insurance policy (other than ULIP for which provision already exists as brought in the Finance Act 2021)where the aggregate of premium payable for any of the years during the terms of the policy exceeds Rs 5 lakhs is now proposed to be subjected to tax. This is proposed for policies issued on or after April 1, 2023.

• Amendment to section 9 in respect of income deemed to accrue or arise in India:

At present, if the donee is a Non-resident and receives any sum of money exceeding Rs. 50,000 without consideration from a resident individual (except which is specifically excluded in the Act), the same is considered to be income deemed to accrue or arise in India (under section 9). As per the budget announced an individual qualifying as ‘Not ordinary resident’ is also proposed to be included in the ambit.

• Customs duty:

There are minor changes in the basic customs duties, cesses & surcharges on some items including toys, bicycles, and automobiles. The government will provide relief in customs duty on the import of certain parts like camera lenses and concession on the import of lithium-ion batteries to further promote mobile phone production in India, said FM. Centre has proposed to increase the basic customs duty on kitchen chimneys from 7.5% to 15% and that on heat coils reduced from 20% to 15%. It has also proposed to reduce basic customs duty on parts, and TV panels to 2.5% in a bid to promote value addition in the manufacture of TVs. Custom duty exemption on import of capital goods for the production of Lithium-ion cells used in batteries of EV.

• Comparison of tax slabs  between two regimes in FY 2023-24:

Old tax regime:

At present, there are fewer tax slabs under the old tax regime: For a person below 60 years of age, there is no tax on income up to Rs2.5 lakh. Income of above 2.5 lakhs up to lakh is taxed at 5%, above 5 lakhs up to 10 lakhs at 20%, and above Rs10 lakh at 30%.

However, under the old tax regime, the basic income threshold exempt from tax for senior citizens (aged 60 to 80 years) and super senior citizens (aged above 80 years) is Rs 3 lakhs and Rs 5 lakhs respectively.

An individual resident who is 60 years or above in age but less than 80 years at any time during the previous year* is considered a Senior Citizen for Income Tax purposes. A Super Senior Citizen is an individual resident who is 80 years or above, at any time during the previous year*.

*(In income tax terminology, the previous year means the year proceeding to the assessment year).

Do note that in addition to the income tax liability computed using the Income Tax slab rates for FY 2023-24, you also have to pay a 4% health and education cess as part of your overall tax outgo for the fiscal.

However, new tax regime slab rates are not differentiated based on age group.

Tax slabs under the new tax regime for the FY 2023-24 (AY-2024-25)

Rs 0-3 lakh – no tax

Rs 3-6 lakh – taxed at 5 per cent

Rs 6-9 lakh – taxed at 10 per cent

Rs 9-12 lakh – taxed at 15 per cent

Rs 12-15 lakh- taxed at 20 per cent

Above ₹ 15 lakh – taxed at 30 per cent

In addition to the income tax liability computed using the Income Tax slab rates for FY 2023-24, you also have to pay a 4% health and education cess as part of your overall tax outgo for the fiscal.

TO KNOW DETAILS OF INCOME TAX REBATE AND DEDUCTIONS AVAILABLE BOTH UNDER NEW AND OLD TAX REGIMES click below:

https://bankingschool.co.in/income-tax/income-tax-act-1961-which-offer-tax-rebate-and-deductions-to-individuals/x