Tag: LTCG TAX RELIEF

Changes in big income tax rules! see list

There are many changes in the income tax rules effective from this financial year. Changes in income tax slabs to tax rebate limit raised, No LTCG tax benefit on some debt mutual funds are some of the major changes effective from 1 April 2023.

1) 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 ₹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 specified exemptions and deductions, like house rent allowance (HRA), interest on home loan, investments made under Section 80C, 80D and 80CCD. Under this, total income up to ₹2.5 lakh was tax exempt.

2) Tax rebate limit raised to ₹7 lakh

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

3) Standard deduction

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

4) 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%

5) LTA

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

6) 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.

7) 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. 

8) Life Insurance policies

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

9) Benefits to Senior Citizens

The maximum deposit limit for senior citizen savings scheme will be increased to ₹30 lakhs from ₹15 lakhs.

The maximum deposit limit for 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.

10) 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.

Top 5 Income Tax rule changes expected

Union Budget 2023 is the last full budget of the government before the 2023 Lok Sabha elections. It is expected that the Government will use this opportunity to announce a growth-oriented budget with a focus on job creation and investment-driven development. Budget 2023 may also have some measures for the benefit of taxpayers as putting more money in their hands could positively impact several other sectors. That said, following are the top five expectations related to Income Tax rule changes for the benefit of taxpayers from Budget 2023.

1. Section 80C Limit Change

Deduction under Section 80C of the Income Tax Act is the most common tax-saving avenue that taxpayers avail. This section covers PPF/EPF, ELSS, NSC, NPS, SSY, and more.

The deduction limit of Rs 1.5 lakh/year under Section 80C has not been revised since 2014. The Government is expected to increase this limit to at least Rs 2 lakh/year or Rs 2.5 lakh this year. Some experts have even suggested that this limit should be increased to Rs 3 lakh.

“There has been no change in the 80C deduction for many years. The present limit of Rs 1.5 lakh was set in Finance Act 2014. Given the inflationary trends, the above limit should be increased to Rs 2.5 lakh,” says Raj Khosla Founder and MD, MyMoneyMantra.com.

Abhishek Soni, CEO and Co-Founder of Tax2win, says increasing the maximum deduction limit under Section 80C to at least Rs. 2.5 lakhs will motivate people to invest more in various tax-saving options. It will also provide relief from unprecedented inflation and help in effective tax savings.

2. Basic Exemption Limit Change

Several Tax Experts have suggested the Government should increase the basic exemption limit under Income Tax Act to Rs 5 lakh.

At present, the basic income tax exemption limit is capped at Rs 2.5 lakhs/ year under both the new and the old income tax regimes. This means individuals earning up to Rs. 2.5 lakh are not liable to pay any taxes.

Changes through previous budgets have made annual income up to Rs 5 lakh effectively tax-free. However, the basic exemption limit has not been revised since FY 2014-15.

 says the exemption limit should be raised in view of rising inflation. “The annual inflation rate was increased to 6.95 per cent in March 2022, which was recorded as the highest since October 2020. Hence, to adjust the high inflation rate, an enhancement in the exemption limit should be done,” he says.

“In order to put more money in the hands of our people, the Government should also consider eliminating the tax on dividend payouts, lowering the tax bracket for investors, and increasing the basic tax exemption level from 2.5 lakhs to 5 lakhs or higher. More cash in the hands of the people will mean more money to invest,” says Puneet Maheshwari, Director, Upstox.

According to Soni, increasing the basic exemption limit will increase disposable income in the hands of consumers, increase the investment capacity of individuals and lower the effective tax rate. It will also boost economic growth.

3. Higher Section 80D

Health expenses have increased and even become costly since the start of the pandemic. Several experts suggest that the Government should, therefore, increase the Section 80D deduction limit for health insurance. Currently, it is capped at Rs 25,000.

“Increasing the limit to claim tax deductions under section 80D will enhance affordability and encourage more people to opt for health insurance for their family and elderly parents. The Covid pandemic experience and increasing hospitalization expense is leading people to consider higher-sum insured health insurance plans which provide comprehensive coverage against all diseases. The limit increase under section 80D will encourage them to opt for a health insurance plan with the adequate sum insured to secure the health of their loved ones,” says Krishnan Ramachandran, MD and CEO at Niva Bupa Health Insurance.

4. Better Home Loan Tax Incentives

Several experts have suggested that the upcoming Budget should increase the tax exemptions on home loan principal and interest payments.

” The maximum tax deduction that can be claimed on a home loan interest payment is Rs 2 lakh per FY on a self-occupied property. However, property prices across the country have risen in the past five years. The country has also seen inflation of 6%-7% over the years. Noticing the present price bands of houses, the tax saving cap of Rs 2 lakh on housing loans as per section 24(b) needs to be increased. The limit needs to be hiked to at least Rs. 3 lakhs, regardless of the property’s price,” says 

“The deduction cap on the principal amount of a home loan, which is currently set at Rs. 1.5 lakh p.a, should be increased to Rs. 4 lakh p.a. Additionally to encourage housing for all, the government should consider increasing the limit of Tax deduction on interest for housing loan from Rs 2 lakh p.a to at least Rs 5 lakh p.a,” says Kamal Khetan, Chairman & Managing Director, Sunteck Realty Ltd.

5. LTCG Tax Relief

Some industry experts have suggested that Government should also provide LTCG tax relief to retail mutual fund and stock investors in the market through Budget 2023.

“It will be beneficial to remove LTCG on equities, which is currently at 10% if the capital gain is more than Rs 1 lakh in a financial year. It would also be ideal to introduce tax exemption on STCG up to Rs 1 Lakh,” says Maheshwari.