The financial year 2022-23 is about to end. On April 1, the financial year 2023-24 will begin with several new income tax rules. Announcements made during the Budget 2023 will be effective from April 1. From changes in income tax slabs to post-office schemes, here is a list of major changes coming with the new financial year.
New Income Tax Regime
As announced by Finance Minister Nirmala Sitharaman, the new income tax regime will act as the default tax regime, however, taxpayers will still be able to choose the old regime.
Under the new tax regime, the tax rebate cap was raised from Rs 5 lakh to Rs 7 lakh, although the new regime is also a minimal exemptions regime. It should be noted that in Budget 2020-21, the government brought the new 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 the home loan, and investments made under Section 80C, 80D, and 80CCD.
Also Read: New Tax Regime Vs Old Tax Regime: Which Is More Attractive And Works Better? Have A Look
The basic deduction of Rs 500,000 that was offered to employees under the previous tax system remains unchanged. The Finance Minister also announced that for pensioners the standard deduction would be extended to the new tax regime. In the new tax regime, the standard deduction for taxable income exceeding Rs 15.5 lakhs is Rs 52,500.
Here is A Look At New Income Tax Slabs
- 0-3 lakh - nil
- 3-6 lakh - 5 per cent
- 6-9 lakh- 10 per cent
- 9-12 lakh - 15 per cent
- 12-15 lakh - 20 per cent
- above 15 lakh- 30 per cent
Budget 2023, also increased leave encashment for non-government employees from Rs 3 lakh to Rs 25 lakh.
In the financial year 2023-24, Income from insurance policies where the premium is over Rs 5 lakh will be taxed. The proposal intends to limit income tax exemption from proceeds of insurance policies with very high value.
Also Read: Budget 2023: No More Tax Exemption For Insurance Policies Where Premium Is Above Rs 5 Lakh
Finance Minister Nirmala Sitharaman also announced that the new income tax rule won't be applicable to ULIP (Unit Linked Insurance Plan).
No Long-Term Capital Gains (LTCG) Benefit On Debt Mutual Funds
Debt mutual funds will no longer have a significant tax advantage over fixed deposits. Capital gains from debt mutual funds that invest less than 35 per cent in domestic equities will be included in income tax starting April 1.
Also Read: Finance Bill 2023 Passed By Lok Sabha With 64 Amendments. Check Key Details
Capital gains made on debt funds are currently deemed long-term if units are held for more than three years. These long-term capital gains (LTCG) are subject to a 20 per cent tax after indexation, which reduces the amount of tax owed. As of April 1, this perk will no longer be available.
Market Linked Debentures (MLDs)
On February 1 it was also announced that the capital gains on market-linked debentures (MLDs) will now be taxed as short-term capital gains. This will be a big blow to High net-worth individuals and families. Due to the favorable tax treatment MLDs receive, high-net-worth individuals frequently choose MLDs. Market-linked debentures are listed instruments that are currently subject to a 10 per cent long-term capital gain (LTCG) tax without indexation.
Benefits to Senior Citizens And Post Office Savings Schemes
The Senior Citizen Savings Scheme (SCSS) limit has been raised from Rs 15 lakh to Rs. 30 lakh and it will be effective from April 1. The Scheme yields an annual interest rate of 8 per cent for January to March 2023 quarter. Interest is paid on a quarterly basis.
The investment cap for Post Office Monthly Income Scheme (POMIS) has been increased from Rs 4.5 lakhs to Rs 9 lakhs. The investment cap for combined POMIS accounts has increased from Rs. 9 lakh to Rs. 15 lakh. From January to March 2023, the scheme offered a monthly interest rate of 7.1 per cent.
The tenure of both SCSS and POMIS is five years. Upon maturity, SCSS accounts are extendable for a further three years.
Gold Conversion Will Not Attract Capital Gains Tax
In the Budget 2023, the finance minister also announced that if physical gold is changed to electronic gold (Electronic Gold Receipt or e-Gold), or vice versa, there won't be any capital gains tax.
NPS Withdrawal Rules
The pension regulator Pension Fund Regulatory and Development Authority (PFRDA), has mandated some specific documents to make annuity payments faster and simpler for subscribers. These include NPS exit/withdrawal forms, proof of identity and address as specified in the withdrawal form, bank account proof, and a copy of the PRAN (Permanent Retirement Account Number) card. These documents need to be uploaded to the CRA (Central Record-keeping Agency) system.