As the new financial year 2023-24 began on April 1, 2023, taxpayers in India are affected by several changes to the income tax rules.
The changes were announced by Union Finance Minister Nirmala Sitharaman during the Union Budget presented on February 1, 2023. The recently passed Finance Bill 2023 too introduced some changes which are likely to affect some sections of taxpayers and investors.
So, let us explain to you the ten big income tax rule changes that will be effective from April 1, 2023.
1) New income tax regime to be default regime:
Starting with the upcoming financial year 2023-24 which begins on April 1, 2023, the new income tax regime will act as the default tax regime. But keep in mind that the old regime continues to exist and those wanting to choose the old one instead of the new regime can certainly do so.
2) Tax rebate limit raised from ₹5 lakh to ₹7 lakh
Budget 2023 also made an annual income of up to ₹7 lakh tax-free. The enhancement of tax rebate limit to ₹7 lakh from ₹5 lakh from the new financial year 2023-24 means that those having income less than ₹7 lakh would have their entire income tax-free under the new income tax regime.
But before you hop onto the new regime, it'll be wise to compare the new and old one as per your existing as well as expected income for FY2023-24.
3) Standard deduction benefit extended to the new regime
The standard deduction was earlier not allowed in the new tax regime until FY 2022-23 (AY 2023-24). However, this benefit of a standard deduction of Rs.50,000 will now be allowed for salaried persons under new tax regime as well, from FY 2023-24 (AY 2024-25) onwards.
4) Changes in Income Tax slabs for new regime
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. 900,000 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. 1500,000 Rs. 90,000 + 20% on income more than Rs. 12,00,000
Above Rs. 15,00,000 Rs. 150,000 + 30% on income more than Rs. 15,00,000
Income Tax slabs & Rates as Per Old Regime FY 2023 - 2024
Given below are the three tables for the alternative Income Tax Slabs:
Income Tax Slab for Individual who are below 60 years
Income Tax slab Tax Rate
Up to Rs.2.5 lakh Nil
Above Rs.2.50 lakh - Rs.5.00 lakh 5% of the total income that is more than Rs.2.5 lakh + 4% cess
Above Rs.5 lakh - Rs.10 lakh 20% of the total income that is more than Rs.5 lakh +
Rs.12,500 + 4% cess
Above Rs.10 lakh 30% of the total income that is more than Rs.10 lakh +
Rs.1,12,500 + 4% cess
Individuals who have an income of less than Rs.5 lakh are eligible for tax deductions under Section 87A
Income Tax Slab Between 60-80 years (Senior Citizen)
Income Tax slabs Tax Rate
Up to Rs.3 lakh Nil
Above Rs.3.00 lakh - Rs.5.00 lakh 5% of the total income that is more than Rs.3 lakh +
4% cess
Above Rs.5.00 lakh - Rs.10 lakh 20% of the total income that is more than Rs.5 lakh +
Rs.10,000 + 4% cess
Above Rs.10 lakh 30% of the total income that is more than Rs.10 lakh +
Rs.1,10,000 + 4% cess
Income Tax Slabs for Individual above 80 years (Super Senior Citizen)
Income Tax slabs Tax Rate
Up to Rs.5 lakh Nil
Above Rs.5 lakh - Rs.10 lakh 20% of the total income that is more than Rs.5
lakh + 4% cess
Above Rs.10 lakh 30% of the total income that is more than
Rs.10 lakh + Rs.1,00,000 + 4% cess
5) LTA encashment limit raised from ₹3 lakh to ₹25 lakh
The leave encashment for non-government employees is exempt up to a certain limit. This LTA encashment limit was ₹3 lakh for two decades (since 2002). It has now increased to ₹25 lakh w.e.f FY 2023-24.
6) 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.
7) Market Linked Debentures (MLDs)
Also, 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.
8) Life Insurance policies
Proceeds from life insurance premium over the annual premium of ₹5 lakh would be taxable from new financial year i.e. from 1st April 2023. Finance Minister Nirmala Sitharaman, while presenting Budget 2023, aslo announced that the new 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 ₹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.
10) 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.
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