Various changes to the income tax laws came into effect that will impact Indian taxpayers from April 1, 2023, which marks the start of the new fiscal year 2023-24.

The Indian economy has seen a boom, especially in the tax collections from the past few years. For the Financial Year 2022–2023, direct tax revenue increased by more than 20%. This number is expected to rise with time as the economy is on upside tack.

Nirmala Sitharaman, the Union Finance Minister, made the revisions public at the presentation of the Union Budget on February 1, 2023. A few modifications that were recently made in the Finance Bill 2023 are also expected to have an impact on some payers and entrepreneurs.

Some of the major changes that should affect everyone are as follows:

  1. The new income tax regime will be the default tax regime as of April 1, 2023. Tax assessors will still have the option to choose from the prior regime. For salaried individuals and pensioners, the standard deduction for taxable income exceeding Rs.15.5 lakhs is now set at ₹52,500.

  2. The standard deduction for employees under the old tax regime remains at ₹50,000. However, the finance minister has extended this benefit to pensioners under the new tax regime. Every salaried individual earning ₹15.5 lakhs or more will benefit from this at ₹52,500.

  3. Additionally, the government introduced an optional income tax regime in the 2020-21 Budget. Individuals and Hindu Undivided Families (HUFs) opting for this regime would be taxed at lower rates if they did not avail of specified exemptions and deductions such as house rent allowance (HRA), interest on the home loan, and investments made under Section 80C, 80D, and 80CCD.

  4. The enhancement of the tax rebate limit to ₹7 lakhs from ₹5 lakhs implies that individuals whose income is less than ₹7 lakhs need not invest anything to claim exemptions. Their entire income would be tax-free, regardless of the amount of investment made.

  5. Income tax slabs have undergone significant changes, with new tax rates as follows: nil for income up to ₹3 lakhs, 5% for income between ₹3 lakhs to ₹6 lakhs, 10% for income between ₹6 lakhs to ₹9 lakhs, and 30% for income above ₹15 lakhs.

  6. The leave encashment for non-government employees is exempt up to a certain limit, which was ₹3 lakhs in 2002 and has now increased to ₹25 lakhs.

  7. Investments made in debt mutual funds after April 1, 2023, will be taxed as short-term capital gains. This change will strip investors of the long-term tax benefits that had made such investments popular. Additionally, investments in Market Linked Debentures (MLDs) after April 1 will also be short-term capital assets. The grandfathering of earlier investments will end, and the mutual fund industry will be slightly impacted.

  8. Life insurance premiums over the annual premium of ₹5 lakhs would be taxable from the new financial year, which is from April 1, 2023. However, the new income tax rule will not apply to ULIP (Unit Linked Insurance Plan).

  9. Senior citizens will benefit from increased deposit limits for the senior citizen savings scheme and monthly income scheme. The maximum deposit limit for the former will be increased to ₹30 lakhs from ₹15 lakhs. For the latter, the maximum deposit limit for single accounts will increase to ₹9 lakhs from ₹4.5 lakhs, and for joint accounts, it will increase to ₹15 lakhs from ₹7.5 lakhs.

  10. Lastly, converting physical gold to an Electronic Gold Receipt (EGR) and vice versa will not attract any capital gain tax, effective April 1, 2023. These changes in income tax rules will have a significant impact on taxpayers, and it is advisable to consult with a financial expert to make informed decisions regarding tax planning and investment strategies.

The financial year of 2023 has brought numerous changes to income tax rules in India. Among the significant changes are the new income tax regime, tax rebate limit increase, the elimination of LTCG tax benefits on some debt mutual funds, and alterations to income tax slabs. The changes have now come into effect for everyone in the country. What will be the results of these changes? Only time will tell.

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