New Income Tax Rules Coming into Effect from Financial Year 2023-24

By Consultants Review Team Friday, 31 March 2023

The income tax rules are set to undergo several modifications starting from the upcoming financial year 2023-24, as announced by the government. During the presentation of the Union Budget on February 1, Union Finance Minister Nirmala Sitharaman revealed these alterations. Among the significant changes are adjustments in the income tax slabs and the removal of long-term capital gains (LTCG) advantages on debt mutual funds. Following are the changes that will take effect from April 1, 2023.

1. During the presentation of the Union Budget, Finance Minister Sitharaman announced changes to the income tax slabs. The tax rebate limit for the new tax regime has been raised from Rs 5 lakh to Rs 7 lakh. Additionally, if a taxpayer does not specify the regime under which they will submit their income tax returns, the new regime will be the default. From April 1, new income tax rates ranging from 0 to 30 percent will be implemented. Those with an annual income up to Rs 3 lakh will be exempt from tax, while that earning between Rs 3 lakh and Rs 6 lakh will have a 5 percent tax rate. People earning between Rs 6 lakh and Rs 9 lakh will have a 10 percent tax rate, while that earning between Rs 9 lakh and Rs 12 lakh will be taxed at 15 percent. And individuals earning between Rs 12 lakh and Rs 15 lakh will have a 20 percent tax rate, while those earning above 15 lakhs will have a 30 percent tax rate. Moreover, the standard deduction limit of Rs 50,000 under the old regime remains unchanged and has been extended to the new regime.

2. Starting from April 1, non-government employees can now encash their leave travel allowance (LTA) for up to Rs 25 lakh per year, a significant increase from the previous limit of Rs 3 lakh, which had been in place since 2002.

3. Starting from April 1, 2023, there will no longer be any long-term capital gains (LTCG) tax benefits for debt mutual funds. This means that indexation benefits on LTCG for debt mutual funds will be eliminated, and such funds will be taxed according to an individual's income tax rates in the new financial year. The government introduced these changes through the Finance Bill 2023, which was passed earlier this week. As a result, all gains from debt mutual funds with less than 35 percent equity exposure will be treated as short-term capital gains and taxed based on the investor's income tax slab.

4. Effective from April 1, investments made in Market Linked Debentures (MLDs) will be regarded as short-term capital assets.

5. Starting April 1, any proceeds from life insurance premiums exceeding the annual premium of Rs 5 lakh will be subject to taxation. It is worth noting, however, that this rule does not apply to Unit Linked Insurance Plans (ULIPs).

6. The Indian government has increased the maximum deposit limit for the Senior Citizen Savings Scheme (SCSS) from Rs 15 lakh to Rs 30 lakh. Additionally, the maximum deposit limit for single accounts in the monthly income scheme has also been raised to Rs 9 lakh from Rs 4.5 lakh, while for combined accounts, the limit has been increased from Rs 7.5 lakh to 15 lakhs under the new regulations.

7. During her presentation of the Budget, Sitharaman announced that starting April 1, the conversion of physical gold to an Electronic Gold Receipt (EGR) and vice versa will not incur any capital tax.

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