As the new fiscal year draws near, taxpayers in India can expect substantial changes. From April 1, 2023, the government will implement several new income tax regulations aimed at simplifying the tax system, increasing compliance, and encouraging digital transactions. It is essential to be aware of the key changes.
Here are the changes to help you stay better prepare for the year ahead.
New Income Tax Regime: From FY 2023-24, the new tax regime will be the default tax regime. Individual taxpayers now have the option to choose between the existing tax slabs and the newly introduced tax slabs, as declared by the government. Although the new slabs offer lower tax rates, they come with the caveat that taxpayers must give up some tax deductions and exemptions. Therefore, it is imperative to carefully evaluate both choices and determine which slab aligns better with your financial circumstances.
Increase In Tax Rebate Limit: The government has recently announced an increase in the tax rebate limit, benefiting individuals with a total income of up to Rs. 7 lakh. The rebate, which falls under Section 87A of the Income-tax Act, 1961 will be up to Rs. 25,000, effectively exempting individuals earning up to Rs 7 lakh annually from paying taxes. The primary goal of this decision is to ease the tax burden on individuals with lower incomes, thus offering them some respite. This enhanced rebate limit will take effect from financial year 2022-23 onwards, and is expected to benefit a considerable number of taxpayers throughout the country. This will be applicable for only new tax regime.
Changes In Income Tax Slabs: Under the new tax regime, the following tax slabs apply to individuals below the age of 60 years:
Up to Rs 3 lakh: Nil Above
Rs 3 lakh-6 lakh: 5 per cent of the total income.
Above Rs 6 lakh-9 lakh: 10 per cent of the total income.
Above Rs 9 lakh-12 lakh: 15 per cent of the total income.
Above Rs 12 lakh-15 lakh: 20 per cent of the total income.
Above Rs 15 lakh: 30 per cent of the total income.
TDS On Cash Withdrawals: In an effort to deter cash transactions, the government has introduced a new regulation mandating banks to deduct tax at source (TDS) at 2 per cent rate on cash withdrawals exceeding Rs. 1 crore from a single bank account during a financial year. This policy is applicable to both individuals and businesses.
Leave Travel Allowance (LTA): Non-government employees are allowed to claim an exemption for leave encashment up to a certain limit. This limit, which was set at Rs. 3 lakh since 2002, has now been raised to Rs. 25 lakh.
No LTCG Tax Benefit On Debt Mutual Funds: Starting April 1, 2023 debt mutual fund investments will be subject to short-term capital gains (STCG) tax. This change will eliminate the long-term capital gains (LTCG) tax advantages that have previously made these investments attractive to investors.
Taxation On Life Insurance Premiums: Starting April 1, 2023, the amount received from life insurance policies with premiums exceeding Rs 5 lakh annually will be subject to taxation. However, during the presentation of Budget 2023, Union Minister of Finance Nirmala Sitharaman said that this new income tax regulation will not be applicable to unit-linked insurance plans (Ulips).