It is critical to be informed of the modifications to the income tax laws in preparation of the impending new fiscal year, which also ushers in the implementation of the suggested financial reform. It keeps us ready to make the necessary modifications to enhance our portfolio.
As of this fiscal year, there have been substantial changes to the tax rules. Raising the tax rebate ceiling and eliminating the LTCG tax advantage on some debt mutual funds are two of the largest changes that will go into effect on April 1, 2023. Let’s look at 10 significant changes to income tax laws that will affect taxpayers starting on April 1, 2023.
01. The default tax system will be the new income tax system.
The new income tax system will take over as the default tax system on April 1, 2023. Tax assessors can still make use of the earlier method. The standard deduction under the new system for taxable income exceeding Rs. 15.5 lakhs is Rs. 52,500 for salaried individuals and retirees.
In Budget 2020-21, the government unveiled a system of optional income taxes 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 the house rent allowance (HRA), home loan interest, and investments made under Section 80C, 80D, and 80CCD. According to this, all income up to Rs. 2.5 lakh was exempt from tax.
2. Increasing the top tax credit to 7 lakh
The tax rebate maximum was raised from 5 to 7 lakhs, which means that those with earnings below this level no longer need to make any investments in order to be eligible for exemptions; instead, their whole income is tax-free, regardless of the number of investments they make.
3. Regular deduction
Employees are still eligible for the standard deduction of $5000 under the current tax code. The new tax legislation will now allow retirees to enjoy the standard deduction, according to the finance minister. Each salaried employee earning at least 15.5 lakh rupees will receive a bonus of 52,500 rupees.
4. New tax rates:
0-3 lakh – nil
3-6 lakh – 5%
6-9 lakh- 10%
9-12 lakh – 15%
12-15 lakh – 20%
30% if over 15 lakh
5 TDS reduction for workers paid on a salary
Taxpayers who receive wage income may see a drop in TDS as a result of the new tax law, which takes effect on April 1. No TDS will be deducted from the accounts of taxpayers who have taxable income below Rs. 7,00,000 and have chosen the new tax regime due to the improved rebate allowed under section 87A of the Income-Tax Act of 1961. (ITA).
Also, under the new tax system, the applicable surcharge for individuals with taxable income beyond Rs 5 crore is reduced from 37% to 25%. Nonetheless, some relief may be anticipated, especially for taxpayers adopting a new tax system. The total TDS drop will depend on the scheme chosen by the taxpayer and the taxable income.
6. When utilizing gold, Electronic Gold Receipt (EGR) conversion is tax-free
Beginning in April, a vault manager who is registered with SEBI will no longer be obliged to pay capital gains tax when changing gold from its physical form into EGR or the other way around. This move aims to foster a seamless transfer while also promoting the concept of electronic gold.
7. Non-residents will be taxed on gifts they receive.
Any gift that a resident gives that is worth more than Rs 50,000 will be taxed if the recipient is a resident but not an ordinary resident (RNOR). The Income Tax Act of 1961 states that a person is a NOR if they have spent no more than 729 days in India over the previous seven years or if they have been away from India for nine out of the previous ten years.
8. Market Linked Debentures (MLDs)
Market Linked Debentures (MLD) investments will also be regarded as short-term capital assets as of April 1. Older assets will no longer be grandfathered, which will have a little negative impact on the mutual fund industry.
09. Insurance plans for life
The income from life insurance premiums beyond the yearly premium of 5 lahks will be taxed as of the beginning of the new fiscal year, or 1 April 2023. The unit-linked insurance plan (ULIP), according to Finance Minister Nirmala Sitharaman, would not be covered by the new income tax law.
10. TDS and the taxability of earnings from online gaming
Winnings from online gaming will be subject to a flat 30% tax under the new section 115BBJ of the Internal Tax Code, which will regulate the taxability of such gains. The winnings will be reduced by taxes when they are collected.
