Top 10 Changes in the Income Tax Rules effective from 1st April 2023




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Top 10 Changes in the Income Tax Rules effective from 1st April 2023

Every new financial year begins with new changes & amendments. Effective from 1st April 2023, there are many changes with regard to income tax slabs, tax rebate limit, Debt fund taxation, etc. Tax Planning and liabilities differ in view of the changes carried out by the Finance Act. Here are the Top 10 changes which may be relevant for FY 2023-24.

  1. New Tax Regime & Changes in Income Tax slabs:
    Starting from the 1stApril 2023, the new income tax regime will be the default tax regime. Taxpayers may do the calculation & check if the old tax regime with benefit of deduction and exemption is still better or the new tax regime without such benefit is better. The investment and deduction may be planned accordingly. Income Tax slab for the FY 2023-24 shall be as under:

a) For the taxpayers under the new tax regime, tax slab & rate shall be as under:

– Income up to Rs. 3 Lakh – Nil

– Income between Rs. 3 to 6 Lakh – 5%.

– Income between Rs. 6 – 9 Lakh – 10%

– Income between Rs. 9 – 12 lakh – 15%.

– Income between Rs. 12-15 lakh – 20%.

– Income above Rs. 15 lakh- 30%

The highest surcharge rate for individuals in the new tax regime is also reduced from 37% to 25%. As a result of this, the maximum marginal rate for individuals shall be reduced from 42% to 39%.

b) For the taxpayers opting for the old Tax regime, tax slab & rate has remained unchanged as under:

– Income up to Rs. 2.50 Lakh – Nil

– Income between Rs. 2.50 to 5 Lakh – 5%.

– Income between Rs. 5 – 10 Lakh – 20%

– Income above Rs. 10 lakh- 30%.

One may plan the advance tax payment obligation keeping in mind the new threshold limit in accordance with the preferred option of the tax regime.

  1. Higher Tax Rebate for Taxpayers with Income not exceeding Rs. 7 Lakh:
    The tax rebate limit has been raised to Rs. 7 lakh for the FY 2023-24 if the person is opting for the new tax regime. The enhanced tax rebate limit would mean that the person whose income is not exceeding Rs. 7 Lakh need not invest anything in order to claim exemptions and the entire income would be tax-free irrespective of the investment by such an individual.
  1. Taxation of Debt Mutual Fund & Market Linked Debentures:
    Effective from 1stApril, all investment in the debt fund will be subject to taxation as short-term capital gains. It is now almost at par with FDs. The holding period will not at all be relevant for taxation of the debt fund & income from Debt fund will be just added to other income & taxable according to the applicable income tax slab. Taxpayers investing in debt funds from tax aspects may explore the other options in view of this.  Similarly, investment in Market Linked Debentures (MLDs) will also be taxable as short term capital assets w.e.f. 01.04.2021. With this, grandfathering of earlier investments will end.
  1. High Value Life Insurance policies:
    Proceeds from new life insurance premium taken on or after 01.04.2023 with annual premium exceeding Rs. 5 lakh would be taxable. One may recall that a similar provision was introduced for ULIP investment by the Finance Act-2022 whereby investment ceiling was kept at Rs. Rs. 2.50 Lakh only.
  1. Increase in the ceiling of the Senior Citizens Saving Scheme (SCSS):
    The maximum limit for deposit in the SCSS was Rs. 15 Lakh which has now been enhanced to Rs. 30 Lakhs effective from 1stApril 2023. Similarly, the maximum deposit limit for monthly income scheme (MIS) has also been increased to Rs. 9 Lakhs from Rs. 4.50 Lakhs for single accounts and Rs. 15 Lakhs from Rs. 7.50 Lakhs for joint accounts.
  1. No tax on conversion of Physical gold to e-gold receipt:
    Finance Act -2023  has provided that no capital gains tax is attracted if physical gold is converted to an Electronic Gold Receipt (EGR) and vice versa. This will be effective from 1 April 2023.
  1. Leave Encashment Allowance:
    The leave encashment for Non-Government employees was exempt up to Rs. 3 Lakh only till FY2022-23. Effective from 01.04.2023, the same has been now enhanced to Rs. 25 Lakh from FY 2023-24.
  1. Standard Deduction for Salaried Taxpayers:
    There is no change in the amount of standard deduction of Rs. 50,000/- available to the salaried taxpayers. However, earlier the benefit of standard deduction was not available to the taxpayers opting for the new tax regime. Now, the same is extended to the taxpayers opting for the new tax regime.
  1. Making timely payment to MSME:
    To ensure the timely payment to the MSME, Finance Act- 2023 has provided that the deduction for purchase of any goods/servicesavailed from Micro and Small Enterprises shall be allowed only if the payment is actually made within the prescribed time frame of 15 days or 45 days. If any business entity has made purchase of any goods/services from a Micro or Small enterprise and the payment for such purchases or services has not been made during the year and it is outstanding as on 31st March (except where such outstanding payments as on 31st March are falling within the period of 15 days or 45 days from the date of 31st March and payment of the same is made in the subsequent period within the appointed date of 15 days or 45 days), the same will not be allowed as a deduction while computing business income.
  1. Rs. 10 Cr ceiling for Capital Gain Exemption:
    Effective from 01.04.2023, there would be a ceiling on the amount which would be eligible for exemption from capital gain.. All LTCG accruing or arising after 01.04.2023 will be subject to the cap of investment in the new house property of Rs. 10 Cr only. Amount invested in the new house property of an amount exceeding Rs. 10 Cr will not be considered while computing capital gain exemption amount.

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