10 big income tax changes to the rules from 1 April 2023 for taxpayers

There are several changes in the income tax rules effective from this financial year. Some of the key differences to take effect on April 1, 2023, are raised tax rebate limits, changes to income tax slabs, and the elimination of the LTCG tax advantage on some debt mutual funds.

New income tax regime to be default regime

Starting, 1 April 2023, the new income tax regime will act as the default tax regime. Tax assessors will still be able to choose from the prior regime. Salaried and pensioners: the new system's standard deduction for taxable income exceeding Rs 15.5 lakhs is Rs 52,500. The government in Budget 2020-21 brought in an optional income tax regime, under which individuals and Hindu Undivided Families (HUFs) were to be taxed at lower rates if they did not avail of specified exemptions and deductions, like house rent allowance (HRA), interest on a home loan, investments made under Section 80C, 80D, and 80CCD. Under this, total income up to Rs 2.5 lacks was tax exempt.

Tax rebate limit raised to Rs 7 lakh

The enhancement of the tax rebate limit to Rs 7 lakh from Rs 5 lakh means that the person whose income is less than Rs 7 lakh 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.

Standard deduction

There is no change in the standard deduction of Rs 50000 provided to employees under the old tax regime. For pensioners, the finance minister announced extending the benefit of the standard deduction to the new tax regime. Each salaried person with an income of Rs 15.5 lakh or more will benefit by Rs 52,500.

Changes in Income Tax slabs

The new tax rates are

0-3 lakh - nil

3-6 lakh - 5%

6-9 lakh- 10%

9-12 lakh - 15%

12-15 lakh - 20%

above 15 lakh- 30%

LTA

The leave encashment for non-government employees is exempt up to a certain limit. This limit was Rs 3 lakh in 2002 and is now increased to Rs 25 lakh

No LTCG tax benefit on these 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.

Market Linked Debentures (MLDs)

Also, 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.

Life Insurance policies

Proceeds from life insurance premiums over the annual premium of Rs 5 lacks would be taxable from the new financial year i.e. from 1st April 2023. Finance Minister Nirmala Sitharaman, while presenting Budget 2023, also announced that the new income tax rule won't be applicable to ULIP (Unit Linked Insurance Plan).

Benefits to Senior Citizens

The maximum deposit limit for the senior citizen savings schemes will be increased to Rs 30 lakhs from Rs 15 lakhs.

The maximum deposit limit for the monthly income scheme will be increased to Rs 9 lakhs from 4.5 lakhs for single accounts and Rs15 lakhs from Rs 7.5 lakhs for joint accounts.

Physical gold conversion to e-gold receipt not to attract capital gains tax

While presenting Budget 2023, Sitharaman said there will not be any capital gain tax if physical gold is converted to an Electronic Gold Receipt (EGR) and vice versa. This will be effective from 1 April 2023.

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