The income tax laws have undergone numerous changes that will take effect this fiscal year. Some of the main changes that take effect on April 1, 2023, include raised tax rebate limits, changes to income tax slabs, and the elimination of the LTCG tax benefit on certain debt mutual funds. 

New Income Tax Regime

The new income tax system will take effect on April 1, 2023, and it will serve as the primary tax system. The previous system will still be available to tax assessors. The standard deduction under the new system for salaried individuals and pensioners with taxable income surpassing Rs.15.5 lakhs is Rs. 52,500. In Budget 2020-21, the government introduced an optional income tax system that would tax individuals and Hindu Undivided Families (HUFs) at lower rates if they did not take advantage of certain exemptions and deductions, such as house rent allowance (HRA), interest on home loans, and investments made under Section 80C, 80D, and 80CCD. 

Tax Rebate Limit

Due to the increase in the tax rebate limit from 5 to 7 lakhs, those with incomes below this threshold are no longer required to make any investments in order to qualify for exemptions; instead, their complete income is tax-free, regardless of the amount of investments they make. 

Standard Deduction

The standard deduction of Rs. 5000 that was given to workers under the previous tax system is still in effect. The finance minister stated that the standard deduction would now be available to pensioners under the new tax system. There will be a 52,500 benefit for each salaried individual with an income of at least 15.5 lakh rupees. 

Changes In Income Tax Slabs

The new tax rates are - 

• 0-3 lakh - nil
• 3-6 lakh - 5%
• 6-9 lakh - 10%
• 9-12 lakh - 15%
• 12-15 lakh -20%

LTA

Non-government workers are exempt from the leave encashment requirement up to a specific amount. This limit has been 3 lakh since 2002, however it is currently 25 lakh.

No LTCG tax benefit on these Mutual Funds

Investments in debt mutual funds will be subject to short-term capital gains tax beginning on April 1. Investors would lose the long-term tax advantages that had made such investments so well-liked as a result of the change.

Market Linked Debentures (MLDs)

Also, 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. 

Life Insurance Policies

From the start of the new fiscal year, or 1 April 2023, the proceeds from life insurance premiums beyond the annual premium of 5 lakh would be taxed. During presenting Budget 2023, Finance Minister Nirmala Sitharaman also stated that the ULIP will not be subject to the new income tax law (Unit Linked Insurance Plan).

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.

Physical gold conversion to e-gold receipt not to attract capital gains tax

According to Sitharaman, when real gold is changed to an Electronic Gold Receipt (EGR) or vice versa, there won't be any capital gains tax. This will take effect on April 1st, 2023.

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