There have been several changes to income tax rules that have become effective from the current financial year. These changes include alterations to income tax slabs, an increase in the tax rebate limit, and the removal of LTCG tax benefits on certain debt mutual funds. These changes have been in effect since April 1st, 2023.
1) New income tax regime to be default regime
Starting from April 1st, 2023, the default income tax regime will be changed to the new system. However, tax assessors will still have the option to choose the prior regime if they prefer. For salaried individuals and pensioners, the standard deduction in the new system for taxable income exceeding Rs.15.5 lakhs will be ₹52,500. In the 2020-21 Budget, the government introduced an optional income tax regime, which would allow individuals and Hindu Undivided Families (HUFs) to be taxed at lower rates if they did not use certain exemptions and deductions such as house rent allowance (HRA), interest on home loans, and investments made under Sections 80C, 80D, and 80CCD. In this optional regime, total income up to ₹2.5 lakhs was exempt from tax.
2) Changes in Income Tax slabs
The new tax rates are
0-3 lakh – nil
3-6 lakh – 5%
6-9 lakh- 10%
9-12 lakh – 15%
12-15 lakh – 20%
above 15 lakh- 30%
3) Benefits to Senior Citizens
The maximum deposit limit for senior citizen savings scheme will be increased to ₹30 lakhs from ₹15 lakhs.
The maximum deposit limit for monthly income scheme will be increased to ₹9 lakhs from 4.5 lakhs for single accounts and ₹15 lakhs from ₹7.5 lakhs for joint accounts.
4) Market Linked Debentures (MLDs)
investment in Market Linked Debentures (MLDs) post April 1 will be short term capital assets. With this, grandfathering of earlier investments will end and the impact on the mutual fund industry will be slightly negative.
5) No LTCG tax benefit on these Mutual Funds
From April 1, investments in debt mutual funds will be taxed as short-term capital gains. The move would strip investors of the long term tax benefits that had made such investments popular.
6) Leave Travel Allowance
The leave encashment for non government employees is exempt up to a certain limit. This limit was ₹3 lakh since 2002 and is now increased to ₹25 lakh
7) Physical gold conversion to e-gold receipt not to attract capital gains tax
While presenting Budget 2023, Sitharaman said there will not be any capital gain tax if physical gold is converted to an Electronic Gold Receipt (EGR) and vice versa. This will be effective from 1 April 2023.