New Income Tax rules introduced in 2023 that would affect you in 2024

The Government of India announced several new rules for the Income Tax in the Union Budget 2023. One of the significant announcements regarding personal taxation was the declaration of the New Income Tax Regime as the default tax regime.

In her Budget speech for 2023-24, Union Finance Minister Nirmala Sitharaman said budget proposals under the new income tax regime will leave more money in the hands of the people and it is up to the taxpayer to decide where to put his money, rather than the government incentivizing or disincentivizing him to do so.

The Government of India introduced significant changes to income tax rules. Here's a simplified breakdown:

1. Defaulting to the New: The Shift in Tax Regime ??

The cornerstone of the 2023 tax reforms lies in the formalization of the New Income Tax Regime as the default option. Initially introduced in Budget 2020 as an alternative, it has now taken center stage. Minister Sitharaman emphasized that while the old tax regime remains accessible to taxpayers, failing to specify the tax regime for TDS from salary or in income tax return filings automatically triggers the calculation based on the new regime's income tax slabs.

2. Revamped Tax Slabs: Catering to Taxpayer Needs ??

The income tax slabs underwent a makeover to enhance attractiveness and align with the needs of taxpayers. The revised slabs are structured as follows:

• Zero tax on income up to Rs 3 lakh.
• A 5% tax on income ranging from Rs 3 lakh to Rs 6 lakh.
• A 10% tax on income between Rs 6 lakh and Rs 9 lakh.
• A 15% tax on income from Rs 9 lakh to Rs 12 lakh.
• A 20% tax on income from Rs 12 lakh to Rs 15 lakh.
• Finally, a 30% tax on income exceeding Rs 15 lakh.

These adjustments aim to provide a more nuanced and equitable tax structure, taking into account the diverse income brackets.

3. Income Tax Rebate: Expanding the Exemption Horizon ??

Before the 2023 Budget, individuals with an annual income up to Rs 5 lakh enjoyed tax exemption. The government extended this limit to Rs 7 lakh, offering relief to a broader spectrum of taxpayers. This move is strategic, aligning to provide financial relief to middle-income groups.

4. Standard Deduction Extension: A Wider Tax-Free Space ??

The standard deduction of Rs 50,000, once confined to the Old Tax Regime, found its way into the new tax regime in the Union Budget 2023. This extension has effectively increased the tax-free income, including the rebate, to Rs 7.5 lakh, providing additional financial flexibility for taxpayers.

5. LTCG Benefit on Debt Mutual Funds Removed: A Tax Landscape Shift ??

Investors in debt mutual funds faced a significant alteration in taxation rules. Investments made after March 31, 2023, are no longer eligible for Long Term Capital Gains (LTCG) taxation benefits on withdrawal. This means that capital gains on debt mutual fund units will now be taxed according to the taxpayer's income slabs, eliminating the previous advantage over bank Fixed Deposits. Investments made until March 31, 2023, will continue to be taxed under the old LTCG rules.

6. Reduced Surcharge for High Net Worth Individuals: Restructuring Tax for the Affluent ??

Finance Minister Sitharaman introduced a notable reduction in the surcharge rate on income exceeding Rs 5 crores. The rate dropped from 37% to 25%, consequently reducing the effective tax rate from 42.74% to 39%. This adjustment, exclusively applicable under the New Tax Regime, aims to make the tax structure more palatable for high-income individuals.

7. Taxes on Life Insurance Maturity Money: A Revised Approach ??

In a departure from previous norms, life insurance maturity money no longer enjoys full exemption from income tax. The new rule stipulates that if the total premium paid on all non-Unit Linked Insurance Plans (ULIP) policies surpasses Rs 5 lakh in a financial year, the maturity amount becomes taxable. The calculation of the taxable maturity amount is contingent upon specified criteria, ensuring a more nuanced approach to life insurance taxation. For ULIP policies, maturity amounts become eligible for taxation if the premium payable exceeds Rs 2.5 lakh in a given financial year.

8. Cap on Capital Gains Deductions from Property Sale: Rethinking Property Investment ??

A significant cap of Rs 10 crore has been imposed on the maximum deduction that can be claimed from capital gains arising from the sale of residential property. This cap, applicable under Sections 54 and 54F of the Income-tax Act, 1961, also affects the investment limit in the Capital Gains Account Scheme. This change, already in effect, has implications for individuals, particularly High Net Worth Individuals (HNIs), who sell property to reinvest and save on taxes related to Long Term Capital Gains (LTCG).

9. IT Returns Discard Option: Streamlining Tax Filings ???

A noteworthy addition in 2023 is the 'Discard return' option introduced by the Income Tax department. This feature allows individuals to completely delete their unverified Income Tax Returns (ITR). With this option, taxpayers can rectify errors before the verification process, providing greater flexibility and control over the tax filing procedure.

10. TDS on Online Game Winnings: A Taxation Move in the Digital Realm ??

In a nod to the burgeoning digital economy, the government introduced a new rule specifying that Tax Deducted at Source (TDS) on online game winnings will be deducted at 30%. Unlike the previous threshold of applying TDS only when winnings exceeded Rs 10,000 in a financial year until March 31, 2023, the new rule dictates that if the deducted tax surpasses the taxpayer's taxable income, filing an Income Tax Return (ITR) becomes necessary to claim a tax refund.

These reforms aim to simplify tax processes, empower taxpayers with greater control over their financial destinies, and create a tax structure that resonates with the diverse needs of the populace. Understanding these changes is paramount for individuals and businesses alike, as it equips them to make informed financial decisions in the context of the new tax paradigm.

What do you think about these changes? Please comment.

- Manish Pandit

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