15 New Rules in Income Tax Effective from 1 April 2023
The financial year 2023-24, which began on April 1, will see several significant new changes in the income tax rules, after the Budget 2023 proposed many changes under the Income Tax Act, 1961.
Income Tax New Changes by Budget 2023 that Taxpayers Must Know
Read the given below 15 major income tax rule changes that will impact all types of taxpayers in FY 2023-24:
1. New Income Tax Slabs Under New Tax Regime
One of the most significant recent changes in income tax laws is the revision of tax slabs under the new tax regime for FY 2023-24. The slabs have been reduced from six to five with lower tax rates to aid the medium income taxpayers. The revised tax rates are:
| Income tax slabs | Rate of Taxation |
| Up to ₹3,00,000 | Nil |
| Between ₹3,00,001 and ₹6,00,000 | 5% of your total income that exceeds ₹3,00,000 |
| Between ₹6,00,001 and ₹9,00,000 | ₹15,000 + 10% of your total income that exceeds ₹6,00,000 |
| Between ₹9,00,001 and ₹12,00,000 | ₹45,000 + 15% of your total income that exceed ₹9,00,000 |
| Between ₹12,00,001 and ₹15,00,000 | ₹90,000 + 20% of your total income that exceeds ₹12,00,000 |
| More Than ₹15,00,000 | ₹1,50,000 + 30% of your total income that exceeds ₹15,00,000 |
2. New Tax Regime Set as the Default Regime
Starting April 1, 2023, the new income tax regime is the default tax regime for FY 2023-24. So, taxpayers who do not specify their choice at the beginning of the financial year will be automatically taxed as per the new tax regime rates, unless they opt for the existing old tax regime.
Individual taxpayers can also change their tax regime at the time of filing ITR; however, domestic companies are not offered this benefit.
Also, taxpayers choosing for lower tax rates under the new tax regime will have to forego various deductions and exemptions that are available under the old tax regime [Source]
3. Basic Exemption Limit Under New Tax Regime Hiked
The Budget 2023 hiked the basic exemption limit by ₹50,000. From April 1, the basic exemption under the new tax regime is ₹3 lakhs, which was ₹2.5 lakhs for all individual taxpayers, irrespective of age.
It implies that as per 2023 new tax laws, individuals opting for the new tax regime in FY 2023-24 will not have to pay any tax if their income from all sources is up to ₹3 lakhs in a financial year.
4. Higher Tax Rebate Under Section 87A
Under Budget 2023, individuals do not have to pay any tax if they have an annual income of up to ₹7 lakhs (after claiming all the eligible deductions) under the new tax regime, in a given financial year. Earlier this rebate was up to ₹5 lakhs.
Thus, as per the latest changes in income tax, taxpayers can enjoy a tax rebate under Section 87A where they can claim a tax rebate of up to ₹25,000, double of the previous financial year. So, they need not invest in tax-saving instruments as their entire income up to ₹7 lakhs would be tax-free.
5. Standard Deduction
From April 1, 2023, salaried individuals and pensioners who opt for the new regime will also be eligible to claim tax benefit from a standard deduction of ₹50,000 as per the recent changes in taxation. While for family pensioners, this deduction is limited to ₹15,000 under the new regime.
The standard deduction will help the taxpayers opting for the new tax regime to reduce their taxable income by ₹50,000; implying that individuals with an income up to ₹7.5 lakhs will not have to pay any tax.
6. Lower Surcharge Rate
Under the new tax regime in Budget 2023, the government has decreased the highest surcharge rate for a taxable income of over ₹5 crores. Taxpayers will now be subject to a surcharge of 25% instead of 37% in previous financial years.
7. Life Insurance Premium Taxable Over ₹5 lakhs
Proceeds from traditional life insurance plans, which were typically used for tax-saving purposes, would be taxable from the new financial year, i.e., from 1st April 2023.
The money received on maturity for life insurance policies issued on or after 1 April 2023 would be taxed at applicable rates if the aggregate annual premium paid by an individual exceeds ₹5 lakhs. However, the 2023 new tax laws are not applicable to policies issued till March 31, 2023.
Also, the new tax rules won’t be applicable on ULIP (Unit Linked Insurance Plan).
8. LTA Encashment Limit Increased
Non-government employees are in for a treat as the government has significantly hiked the tax exemption limit on leave encashment for Leave Travel Allowance (LTA) from FY 2023-24. They can now claim tax exemption up to ₹25 lakhs, while earlier the limit was set to ₹3 lakhs.
9. Senior Citizens Savings Scheme Limit Increased
To promote the welfare of senior citizens above the age of 60, the government has increased the maximum deposit limit for Senior Citizens Savings Scheme (SCSS) up to ₹30 lakhs from ₹15 lakhs, under recent changes in taxation.
Similarly, the maximum deposit limit for the monthly income scheme is increased to ₹9 lakhs from ₹4.5 lakhs for single accounts and ₹15 lakhs from ₹7.5 lakhs for joint accounts.
10. No LTCG Benefit in Debt Mutual Funds
From April 1, as per the new tax rules for capital gains, investments made in debt mutual funds will be taxed as short-term capital gains, irrespective of the holding period. Thus, investors are stripped of the tax benefits on long-term capital gains.
11. Market-Linked Debentures (MLDs)
Under the new tax changes for 2023, the investment in Market Linked Debentures (MLDs) from April 1, 2023, will be taxed as per the slab rates for short-term capital gains or debt funds.
Earlier, capital gains from MLDs for a holding period of over a year were taxed at 10%.
12. No Capital Gains Tax on Physical Gold Conversion to e-Gold Receipt
The Budget 2023 proposed that there will not be any capital gain tax on converting physical gold to Electronic Gold Receipts (EGRs) and vice versa, effective from 1 April 2023.
According to the government, this move is aimed at increasing the electronic gold investment opportunities and encouraging the digital gold market in India.
13. Tax Exemption on Property Sale Restricted
Under Sections 54 and 54F, the capital gains arising from the sale of residential property or any other capital asset are eligible for tax exemption, provided the sale amount is invested in a new house property.
However, according to the new rules in income tax, the government has restricted the tax benefits up to ₹10 crores, effective April 1, 2023. Any gains above this amount will be taxed at 20% (with indexation benefit).
14. TDS On Online Gaming Winnings
As per the income tax new changes for FY 2023-24, the government has changed the TDS applicable on all forms of online gaming winnings, such as cash, vouchers, or any other benefit.
From April 1, 2023, the net winnings from playing online games will be subjected to a flat 30% TDS. Earlier, the TDS was applicable if the winning amount exceeded ₹10,000.
15. Lower TDS on EPF Withdrawal (in some cases)
One of the Budget 2023 income tax changes that will come into effect from April 1 includes reduced TDS on EPF withdrawals. In cases where PAN is not available, the TDS has been reduced to 20% from 30%.
Remember that this TDS on EPF withdrawal is applicable only if the withdrawal is made before five years.
FAQs about New Rules in Income Tax
What are the major income tax changes under Budget 2023?
The Union Budget 2023 increased the total taxable income eligible for rebate under Section 87A to ₹7 lakhs and revised the tax slab rates, under the new tax regime. It also reduced the highest surcharge rate to 25% on income above ₹5 crores. Also, from April 1, 2023, the new tax regime will be the default regime.
What is the basic exemption limit for FY 2023-24?
Income up to ₹3 lakhs in the new regime is now tax free, as announced by Budget 2023. Earlier this limit was ₹2.5 lakhs.
Are there any changes in tax deduction and exemption for FY 2023-24?
Deductions under 80C, 80TTA, 80D, HRA exemptions, etc. have been removed from the new tax regime after Budget 2023. However, individuals who are planning to continue with the old income tax regime can continue to claim these deductions.
Can I switch the income tax regime for ITR filing in 2023?
New tax regime will be the default regime for all. Yes, individual taxpayers can choose between the old and new tax regime to file ITR. Some of them can even change it during ITR filing. However, companies cannot change once they’ve chosen the tax regime.