The new financial year 2023-24 is set to begin on April 1, 2023, and taxpayers in India will be affected by several changes to the income tax rules. These changes were announced by Union Finance Minister Nirmala Sitharaman during the Union Budget presented on February 1, 2023. In this blog, we will discuss the ten biggest income tax changes that will impact taxpayers in FY 2023-24.
Here are the details of 5 big income tax rule changes that will be effective from April 1, 2023:
1. New income tax regime to be set as default regime:
The new income tax regime will be set as the default regime for all taxpayers from April 1, 2023. This means that if you do not opt for any tax regime, the new regime will automatically apply to you. The new regime is optional and taxpayers can choose to stick with the old regime if it is more beneficial for them. The new regime will have lower tax rates but fewer exemptions and deductions.
2. Standard Deduction:
From April 1, 2023, the standard deduction for salaried employees of Rs. 50,000 will be allowed in the new regime also . The standard deduction is a fixed amount that is deducted from the taxable income of the employee before the tax is calculated. This will reduce the tax liability of salaried employees.
3. Tax-free income for salaried employees:
|Income Range||Income Tax Rate|
|Up to Rs. 3,00,000||Nil|
|Rs. 3,00,000 to Rs. 6,00,000||5% on income which exceeds Rs. 3,00,000|
|Rs. 6,00,000 to Rs. 9,00,000||Rs. 15,000 + 10% on income more than Rs. 6,00,000|
|Rs. 9,00,000 to Rs. 12,00,000||Rs. 45,000 + 15% on income more than Rs. 9,00,000|
|Rs. 12,00,000 to Rs. 15,00,000||Rs. 90,000 + 20% on income more than Rs. 12,00,000|
|Above Rs. 15,00,000||Rs. 1,50,000 + 30% on income more than Rs. 15,00,000|
5. Life insurance policies will become taxable:
To give you a more comprehensive explanation, under the new income tax rules effective from April 1, 2023, the maturity proceeds from life insurance policies will become taxable if the premium paid in a financial year is more than Rs 5 lakhs. This means that if the premium paid exceeds the specified amount, the amount received on maturity or death of the policyholder will be added to their total income and taxed as per their income tax slab.
However, it is important to note that the taxability of life insurance proceeds applies only to policies with an annual premium of more than Rs 5 lakhs. ULIPs, which are a type of life insurance policy that also offer investment benefits have a Limit of 2.5 lakh per annum since last year. Furthermore, the amount received from a life insurance policy in case of the policyholder's death is still tax-free regardless of the premium amount.
6. Tax on Online Gaming:
The new section 115BBJ introduced in the Income Tax Act will tax the winnings from online gaming. The tax rate for such winnings will be a flat 30%, which will be deducted at source at the time of receiving the winning amount. This means that the tax liability for online gaming winnings will be borne by the player, and the platform or the game operator will be responsible for deducting the tax and remitting it to the government. It is important to note that this tax will be applicable only for winnings above Rs 10,000 in a financial year.
7. Higher tax on Debt Mutual Funds:
The Finance Bill 2023 has brought a significant change in the taxation of debt mutual funds and market-linked debentures (MLDs). From April 1, 2023, investments in debt mutual funds will no longer enjoy long-term capital gains (LTCG) tax benefits and will be taxed as short-term capital gains at normal slab rates, thereby stripping investors of the indexation benefits. Similarly, income from listed market-linked debentures (MLDs) will no longer be taxed favorably, and will be treated as debt instruments, putting an end to the more benign equity-like taxation that they currently enjoy. These changes will have a significant impact on the taxation of debt mutual funds and MLDs, and investors need to take these changes into account while planning their investments.
8. Conversion of gold to electronic gold receipt to become tax-free:
The Indian government has recently announced a new measure to promote the purchase of electronic gold in the country. As per the new rule, if physical gold is converted into an Electronic Gold Receipt (EGR) and vice versa by a SEBI-registered Vault Manager, then it will be excluded from the purview of 'transfer' for the purposes of capital gains. This means that there will be no capital gains tax on such conversions. The new rule is expected to encourage the use of electronic gold and enhance the digital gold market in India. It will also make gold investment opportunities more widely available to Indian investors. This move is significant as India is one of the largest consumers of gold in the world, and the promotion of electronic gold could lead to a reduction in the import of physical gold and lower the current account deficit of the country. Applicable form 01.04.2023
9. Senior Citizens Savings Scheme:
The Senior Citizens Savings Scheme (SCSS) is a popular investment option for senior citizens in India. The scheme offers a fixed interest rate and tax benefits to senior citizens. The increase in the maximum deposit limit from Rs 15 lakh to Rs 30 lakh is expected to attract more senior citizens to invest in the scheme and secure their retirement. The interest earned from SCSS is taxable, but the scheme also provides for tax deductions under Section 80C of the Income Tax Act, 1961. The maturity period for SCSS is 5 years and can be extended for another 3 years. Interest rate on SCSS has been increased to 8.2% wef 01.04.2023 (read Details Here)
10.Gifts received by Resident, but not-ordinarily residents (RNOR) will be taxed:
As per the new income tax rules, gifts received by Resident but not-ordinarily residents (RNOR) will be taxed in India. RNORs are individuals who have spent less than 182 days in India in the previous financial year. This change is aimed at preventing tax evasion by RNORs who receive gifts from their family members in India.
11. Claims under Section 54 and Section 54F will be limited:
From 1st April 2023, claims under section 54 and section 54F will be limited to Rs 10 crores. Any amount invested beyond Rs 10 crores will not be eligible for tax incentives under these sections, and the gains above Rs 10 crores will be taxed at 20% with indexation benefit. This move is aimed at curbing the abuse of these provisions by high-net-worth individuals who have been investing huge amounts in property to evade taxes.
These are the major income tax rule changes that will be effective from April 1, 2023. It is recommended to consult with a tax expert to understand the implications of these changes on your financial situation.
As a taxpayer, it is important to understand these changes and plan your finances accordingly. Before choosing between the old and new tax regime, it is wise to compare both as per your existing as well as expected income. These changes will impact different taxpayers differently, so it is important to seek professional advice if needed.