There are several changes to income tax rules that will come into effect in the next financial year, starting from April 1, 2023.
From changes in income tax slabs under the new regime to higher tax rebate, here is a recap of all the tax-related changes that individuals should know before the start of the financial year.
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New income tax regime becomes default option
Taxpayers should note that the new income tax structure will now be the default regime. Individuals will still be able to opt for the old regime by opting for it while filing an income tax return or ITR.
Tax rebate on income of Rs 7 lakh
Another important change that income taxpayers should look out for is the revised tax rebate limit under the new income tax regime. From April 1, 2023, the tax rebate limit will be enhanced to Rs 7 lakh from Rs 5 lakh. This means a person whose income does not exceed Rs 7 will not be taxed at all. The entire income will be tax free, but this is only applicable under the new income tax regime.
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Marginal income tax relief facility
There is good news even for taxpayers who have a taxable income of marginally above Rs 7 lakh per annum (after claiming Rs 50,000 standard deduction) and opt for the new income tax regime. While the rebate of Rs 25,000 is only applicable on taxable income up to Rs 7 lakh per annum, the government has amended the finance bill to benefit taxpayers who marginally go beyond the threshold.
For instance, a person with a taxable income of Rs 7,05,000 (income exceeding the rebate limit by Rs 5,000) will be eligible for the marginal relief. While the total taxable income in this case comes to Rs 26,520 (cess + Rs 25,000), he/she would only be taxed on Rs 5,000. However, the marginal relief facility will only be applicable till your income crosses the actual tax payable.
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Standard deduction under new income tax regime
The standard deduction of Rs 50,000 will be applicable under the new income tax regime from the next financial year. It will continue to exist under the old income tax regime as well. Therefore, people opting for the new income tax regime will be able to claim a standard deduction of Rs 50,000 as well.
Tax slab changes under new income tax regime
In Budget 2023-24, new tax slabs were announced under the new income tax regime.
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Rs 0-3 lakh – nil
Rs 3-6 lakh – 5%
Rs 6-9 lakh- 10%
Rs 9-12 lakh – 15%
Rs 12-15 lakh – 20%
Above Rs 15 lakh- 30%
Leave encashment limit
The leave encashment amount for non-government employees will be exempt from tax up to Rs 25 lakh from April 1. The earlier limit was just Rs 3 lakh, unchanged since 2002.
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Debt mutual funds to be taxed as short-term gains
From the next financial year, debt mutual fund investment will be taxed as short-term capital gains. This means investors will not get the long-term capital gains benefit from such investments anymore. It may be noted that this will apply to only fresh investments from April 1 onwards. This is likely to hurt high net-worth individuals who usually go for such investments.
Life insurance proceeds with premiums above Rs 5 lakh taxable
Life Insurance proceeds with premiums above Rs 5 lakh will be taxable from April 1. This was one of the most talked about changes announced in the budget.
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It may be noted that for life insurance policies issued on or after April 1, 2023, the tax exemption on maturity benefits will only be applicable if the aggregate annual premium paid by an individual is up to Rs 5 lakh.
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Benefits for senior citizens
From April 1, the maximum deposit limit under the Senior Citizens Saving Scheme will be Rs 30 lakh compared to Rs 15 lakh. This announcement was also made in the budget for the ongoing financial year.
In addition, the maximum deposit limit for the monthly income scheme will increase to Rs 9 lakh from the existing R 4.5 lakh for single accounts, and Rs 15 lakh for joint accounts.
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Tax relief for HNIs
In the budget, the highest surcharge rate applicable on income above Rs 5 crore annually was reduced from 37 percent to 25 per cent. This will be applicable to HNIs who opt for the new income tax regime from the next financial year.
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MLDs to be taxed as short-term gains
Last but not the least, investors should also note that Market Linked Debentures or MLDs will be taxed as short-term capital gains from April 1, 2023. MLDs are non-convertible where returns are linked to the market. This will have a marginally negative impact on the mutual fund industry.
