1) New income tax regime to be default regime
Starting with the upcoming financial year 2023-24 which begins on April 1, 2023, the new income tax regime will act as the default tax regime. But keep in mind that the old regime continues to exist and those wanting to choose the old one instead of the new regime can certainly do so.
2) Tax rebate limit raised from ₹5 lakh to ₹7 lakh
Budget 2023 also made an annual income of up to ₹7 lakh tax-free. The enhancement of tax rebate limit to ₹7 lakh from ₹5 lakh from the new financial year 2023-24 means that those having income less than ₹7 lakh would have their entire income tax-free under the new income tax regime.
But before you hop onto the new regime, it’ll be wise to compare the new and old one as per your existing as well as expected income for FY2023-24.
3) Standard deduction benefit extended to the new regime
The standard deduction was earlier not allowed in the new tax regime until FY 2022-23 (AY 2023-24). However, this benefit of a standard deduction of Rs.50,000 will now be allowed for salaried persons under new tax regime as well, from FY 2023-24 (AY 2024-25) onwards.
4) Changes in Income Tax slabs for new regime
The new tax rates and slabs under new regime, as announced in Budget 2023, are as follows:
0-3 lakh – nil
3-6 lakh – 5%
6-9 lakh- 10%
9-12 lakh – 15%
12-15 lakh – 20%
Above 15 lakh- 30%
5) LTA encashment limit raised from ₹3 lakh to ₹25 lakh
The leave encashment for non-government employees is exempt up to a certain limit. This LTA encashment limit was ₹3 lakh for two decades (since 2002). It has now increased to ₹25 lakh w.e.f FY 2023-24.
6) No more LTCG tax benefits on debt mutual funds
In the recently passed Finance Bill 2023, LTCG tax benefits on debt mutual funds have been taken away. From April 1 2023, investments in debt mutual funds will be taxed as short-term capital gains
The Finance Bill 2023 gives effect to the financial proposals of the central government for the financial year 2023-24 to be taken into consideration. FM Sitharman introduced 64 official amendments to the Finance Bill, which were tabled in Parliament on February 1 along with the budget proposals.
Following amendments, 20 new sections have been added to the Bill. The Finance Bill will now be sent to the Rajya Sabha.
Changes In Taxation For Debt Mutual Funds
Debt mutual funds, which have previously benefited from a tax break because long-term capital gains (LTCG) were taxed at 20% with indexation, will lose this benefit on April 1, 2023.
-No LTCG On Debt Mutual Funds
Debt mutual funds will no longer enjoy long-term tax benefits if they invest less than 35 per cent of their assets in equities. The amendment in the Financial Bill 2023 stated: “Specified mutual fund means a mutual fund by whatever name called where not more than 35 per cent of its total proceeds is invested in equity shares of the domestic companies.”
“An arbitrage is being created right now where interest income from debt mutual fund (where not more than 35% invested in shares in domestic company) is not distributed and converted into long term capital gains of 20% (with indexation). In some case it comes to even less than 10% due to indexation. Thus many taxpayers are able to reduce their tax liability through this arbitrage,” the Finance Ministry explained. Income from debt mutual funds that invest up to 35% in equity shares of domestic companies will be taxable at applicable rate since income from equities in such funds do not constitute interest income.
-Increase In Securities Transaction Tax (STT)
The government is raising the Securities Transaction Tax (STT) on futures and options contracts in the stock market from April 1, 2023, and changes to this effect were brought into the Finance Bill cleared by the Lok Sabha today. Options contracts will now attract 0.021% STT, up from 0.017% earlier, and futures will attract a levy of 0.0125%, up from 0.01%.
7) No preferential taxation for market-linked debentures
From April 1, 2023. taxation of income from listed market-linked debentures (MLDs) will no longer be favourable. MLDs will now be taxed as debt instruments, putting an end to the more benign equity-like taxation currently.
At present, capital gains from such listed debentures are taxed at 10% after a holding period of more than a year, as per ET. And now, debt taxation from April 1 means this will now be taxed as short-term capital gains at the slab rate similar to comparable debt investments.
Budget 2023 had also introduced a premium limit on traditional life insurance plans for claiming tax exemption on maturity proceeds. 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 lakh. For life insurance premiums beyond ₹5 lakhlimit, the proceeds will be added to the income and taxed at applicable rates.
So, if you purchase any life insurance plans (other than ULIP) on or after April 1, 2023, and the aggregate premium exceeds ₹5,00,000 in a fiscal year, the money received on maturity will be taxable.
9) Maximum deposit limit under SCSS increased to ₹30 lakh
In a boost for senior citizens, the maximum investment limit for the Senior Citizen Savings Scheme (SCSS) has been doubled from Rs 15 lakh to Rs 30 lakh, effective April 1 2023.
For the unversed, Senior Citizens Savings Scheme (SCSS) is primarily for the senior citizens of India. The scheme offers a regular stream of income with a high degree of safety and tax-saving benefits. SCSS is a government-backed retirement benefits programme for senior citizens to invest a lump sum in the scheme, individually or jointly, and get access to regular income along with tax benefits.
10) No capital gains tax on physical gold conversion to e-gold receipt
In a move that seems to be aimed at encouraging the purchase of electronic gold, the government has removed capital gains tax if physical gold is converted to an Electronic Gold Receipt (EGR) and vice versa. Effective April 1 2023, conversion of the physical form of gold into EGR and vice versa by a SEBI registered Vault Manager will be excluded from the purview of ‘transfer’ for the purposes of capital gains.
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