Come April, 10 Big Income Tax Rule Changes to Take Effect for Taxpayers, Deets Inside

New Delhi: The announcements made by the Union Finance Minister Nirmala Sitharaman in the annual budget on February 1 will come into effect with the start of a new financial year (FY) 2023-24 on April 1, 2023. 

These changes will range from the adoption of the new income tax regime, tweaked income tax slabs to no LTCG tax benefit on some of the debt mutual funds. Let’s take a look at these rules. 

1. Default tax regime: 

As per the Finance Minister’s announcement, the new income tax regime will act as the default tax regime. The taxpayers will have a choice to change their regime, in case they don’t. The income tax will be calculated as per the new tax regime. 

 2. Tax rebate limit

Starting April 1, the tax rebate under Section 87A will be raised to taxable income level of Rs 7 lakh. This means that an individual who has a salary of less than Rs 7 lakh per annum doesn’t need to make investments to claim exemptions. 

3. Standard deduction: 

The deduction of Rs 50,000 under the old regime remains will not be changed. This facility has now been extended to the new regime. A salaried person with an yearly income of Rs 15 lakh or more, will benefit by Rs 52,500.

4. Changes in Income tax slabs: 

The new tax rates are

Yearly salary up to Rs 3 lakh: Nil

Rs 3 lakh- Rs 6 lakh: 5%

Rs 6 lakh to Rs 9 lakh: 10%

Rs 9 lakh to Rs 12 lakh: 15%

Rs 12 lakh to Rs15 lakh: 20%

Above Rs 15 lakh: 30%

5. LTA:

The leave travel allowance (LTA)  encashment limit for non-government employees is exempted to a certain limit. This was Rs 3 lakh since 2002, now raised to Rs 25 lakh. 

6. No LTCG tax benefit on these Mutual Funds (MFs):

Starting April 1, 2023,  investments in debt mutual funds will be taxed as short-term capital gains. The long-term capital gains provision and 20 per cent tax with indexation benefit will not be available on debt MFs. The existing investments will continue to get this benefit.

7. Market-linked debentures (MLDs):

The investment in MLDs will be short-term capital assets. This move will put an end to the grandfathering of earlier investments and the impact on the mutual fund industry will be slightly negative. 

8. Life and Term insurance policies:

Proceeds from life insurance premiums over the annual premium of Rs 5 lakh would be taxed. However, the income tax rule won't be applicable on ULIP (Unit Linked Insurance Plan).

9. Benefits to Senior Citizens: 

The maximum deposit limit for senior citizen savings scheme will be increased to Rs 30 lakhs from Rs 15 lakhs, Rs 9 lakh from Rs 4.5 lakh and to Rs 15 lakh from Rs 7.5 lakh for monthly income scheme (single and joint schemes respectively). 

10. Physical gold conversion: 

There will be no capital tax gain if physical gold is converted to an Electronic Gold Receipt (EGR), or vice-versa, according to the Union Finance minister. This change will be effective from April 1, 2023. 

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