Many modifications to income tax regulations will go into effect in the following fiscal year, beginning April 1, 2023.
From new income tax slabs to larger tax rebates, here is a rundown of all the tax-related changes that people should be aware of before the start of the fiscal year.
New income tax regime becomes default option
Taxpayers should be aware that the new income tax structure is now the default. People will still be able to choose the previous regime while completing an income tax return, or ITR.
Tax rebate on income of Rs 7 lakh
In the new income tax system, the tax refund ceiling has been lowered, which is another big change that people who pay income taxes should know about. The tax refund ceiling would be increased to Rs 7 lakh from Rs 5 lakh on April 1, 2023. This implies that anybody with an income of less than Rs 7 would not be taxed at all. The full income will be tax-free, but only under the new income tax scheme.
Marginal income tax relief facility
There is also good news for taxpayers who choose the new income tax system and have taxable income that is somewhat more than Rs 7 lakh per year (after claiming the Rs 50,000 basic deduction). Although the Rs 25,000 refund is only available on taxable income up to Rs 7 lakh per year, the government has revised the budget bill to help taxpayers who fall just short of the threshold.
For example, a person with taxable income of Rs 7,05,000 (income that exceeds the rebate limit by Rs 5,000) is entitled to the marginal relief. Although the total taxable income in this scenario is Rs 26,520 (cash + Rs 25,000), he or she is only taxed on Rs 5,000. Nevertheless, the marginal relief option will be available only until your income exceeds the actual tax due.
Standard deduction under new income tax regime
In the new income tax system, the standard deduction of Rs 50,000 will be available starting with the next fiscal year. It will also continue to exist under the previous income tax structure. As a result, those who choose the new income tax system would be entitled to claim a basic deduction of Rs 50,000.
Tax slab changes under new income tax regime
New tax slabs under the new income tax system were introduced in Budget 2023-24.
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
On April 1, non-government workers’ leave encashment amounts will be tax-free up to Rs 25 lakh. The previous ceiling of Rs 3 lakh has remained constant since 2002.
Debt mutual funds to be taxed as short-term gains
Debt mutual fund investments will be taxed as short-term capital gains beginning in the following fiscal year. This implies that investors will no longer benefit from long-term financial gains from such investments. It should be stressed that this will only apply to new investments made after April 1st. This is likely to be detrimental to high-net-worth individuals who often make such investments.
Life insurance proceeds with premiums above Rs 5 lakh taxable
Life insurance profits over Rs 5 lakh will be taxed from April 1. This was one of the most widely discussed budget revisions.
Note that the tax exemption on maturity benefits will only be available for life insurance policies issued on or after April 1, 2023, and only if the total annual premium paid by an individual is up to Rs 5 lakh.
Benefits for senior citizens
The maximum deposit limit under the Senior Citizens Savings Scheme will be Rs 30 lakh from April 1, up from Rs 15 lakh before. This declaration was also made in the current fiscal year’s budget.
Also, the monthly income scheme’s maximum deposit limit would be raised to Rs 9 lakh from Rs 4.5 lakh for single accounts and Rs 15 lakh for joint accounts.
Tax relief for HNIs
The maximum surcharge rate payable on income above Rs 5 crore per year was cut from 37% to 25% in the budget. This will apply to HNIs who choose the new income tax system beginning with the following fiscal year.
MLDs to be taxed as short-term gains
Finally, investors should be aware that Market Linked Debentures (MLDs) will be taxed as short-term capital gains beginning April 1, 2023. MLDs are non-convertible securities with market-linked returns. The mutual fund industry will suffer a little setback as a result of this.