10 key income tax rule changes starting 1 April 2023 for taxpayers
The upcoming new fiscal year, which also marks the implementation of the proposed finance reform, makes it crucial to be aware of the changes in income tax regulations in advance. It maintains our readiness for the adjustments required to polish our portfolio.
The income tax laws have undergone significant revisions as of this fiscal year. One of the biggest changes that will take effect on April 1, 2023, is the raising of the tax rebate cap and the elimination of the LTCG tax benefit on certain debt mutual funds. Let’s take a look of 10 key income tax rule changes starting from 1st April 2023 for taxpayers.
01. The new income tax system will be the default one.
On April 1, 2023, the new income tax system will become the default tax system. The previous system will still be available for tax assessors to use. For salaried people and pensioners, the standard deduction under the new system for taxable income over Rs. 15.5 lakhs is Rs. 52,500.
The government unveiled an optional income tax system in Budget 2020–21, which would tax people and Hindu Undivided Families (HUFs) at lower rates if they did not take advantage of certain exemptions and deductions, including the house rent allowance (HRA), home loan interest, and investments made under Section 80C, 80D, and 80CCD. This said that all income up to Rs. 2.5 lakh was tax-free.
02. Raising the maximum tax rebate to ₹7 lakh
Due to the increase in the tax rebate ceiling from ₹ 5 to 7 lakhs, those with incomes below this threshold are no longer need to make any investments in order to qualify for exemptions; instead, their full income is tax-free, regardless of the amount of investments they make.
03. Standard deduction
The standard deduction of ₹50000 that was given to employees under the previous tax system is still in effect. According to the finance minister, pensioners will now be able to take use of the standard deduction under the new tax code. There would be a ₹ 52,500 bonus for each salaried worker having a salary of at least ₹ 15.5 lakh rupees.
04. New tax rates:
0-3 lakh – nil
3-6 lakh – 5%
6-9 lakh- 10%
9-12 lakh – 15%
12-15 lakh – 20%
above 15 lakh- 30%
05. TDS reduction for salaried employees
As a result of the new tax law going into effect on April 1, taxpayers who receive salary income may experience a decrease in TDS. Due to the enhanced rebate permitted by section 87A of the Income-Tax Act of 1961, no TDS would be withheld from the accounts of taxpayers who have taxable income below Rs. 7,00,000 and have chosen the new tax regime. (ITA).
Furthermore, the relevant surcharge for people with taxable income above Rs 5 crore is cut from 37% to 25% under the new tax regime. The entire TDS decrease will depend on the scheme chosen by the taxpayer and the taxable income; nonetheless, some relief may be expected, particularly for taxpayers choosing a new tax system.
06. Electronic Gold Receipt (EGR) conversion is not taxed when using gold
A SEBI-registered vault manager will no longer be required to pay capital gains tax when converting gold in its physical form into EGR or vice versa as of April. With this action, the idea of electronic gold is meant to be promoted and a smooth conversion encouraged.
07. Gifts received by non-residents will be subject to taxation.
A resident but not an ordinary resident (RNOR) will be taxed on any gift they receive from a resident that is worth more than Rs 50,000. According to the Income Tax Act of 1961, a person is a NOR if they have been outside of India for nine out of the ten years prior to that year, or if they have spent no more than 729 days there in the seven years prior.
08. Market Linked Debentures (MLDs)
Additionally, after April 1 investments in Market Linked Debentures (MLDs) would be considered short-term capital assets. With this, grandfathering of older investments will come to an end, with slightly negative effects on the mutual fund sector.
09. Life Insurance policies
From the start of the new fiscal year, or 1 April 2023, the proceeds from life insurance premiums above the annual premium of 5 lakh would be taxed. When presenting Budget 2023, Finance Minister Nirmala Sitharaman also stated that the ULIP(Unit Linked Insurance Plan) will not be subject to the new income tax law.
10. TDS and the taxability of net gaming winnings
The new section 115BBJ of the Internal Revenue Code will govern the taxability of winnings from online games, and a flat 30% tax will be charged on such winnings. Taxes will be deducted from the winnings at the point of collection.
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