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10 Income Tax Rule Changes That Could Affect Your Finances in 2023

The Indian Income Tax Department has announced 10 major income tax rule changes, effective from 1 April 2023. These include a new default tax regime, increased tax rebate limit, revised income tax slabs, benefits for senior citizens, and changes to taxation on life insurance and physical gold conversion. Taxpayers should be aware of these changes to make informed decisions.

Shruti Kandwal
The maximum deposit limit for senior citizen savings scheme will be increased to Rs. 30 lakhs from Rs. 15 lakhs.
The maximum deposit limit for senior citizen savings scheme will be increased to Rs. 30 lakhs from Rs. 15 lakhs.

Taxpayers can expect 10 significant changes to income tax rules from April 1, 2023. The modifications include alterations to income tax slabs, an increase in the tax rebate limit, and the end of long-term capital gains tax benefits for certain debt mutual funds. Here is a breakdown of the ten changes:

Default tax regime:

The new income tax regime will be the default tax regime from 1 April 2023, but taxpayers can still choose the prior regime. Under the new system, salaried individuals and pensioners with taxable income exceeding Rs. 15.5 lakhs will receive a standard deduction of Rs. 52,500.

Tax rebate limit raised:

The tax rebate limit has been raised to Rs. 7 lakhs from Rs. 5 lakhs. This means that individuals whose income is less than Rs. 7 lakhs will not need to invest anything to claim exemptions and their entire income will be tax-free, regardless of the quantum of investment made.

Standard deduction:

The standard deduction for salaried employees under the old tax regime remains at Rs. 50,000, but pensioners will now also benefit from this deduction under the new tax regime.

Changes in Income Tax slabs:

There are new tax rates for different income brackets:

0-3 lakhs: Nil

3-6 lakhs: 5%

6-9 lakhs: 10%

9-12 lakhs: 15%

12-15 lakhs: 20%

Above 15 lakhs: 30%

LTA:

The limit for leave encashment for non-government employees has been increased from Rs. 3 lakhs to Rs. 25 lakhs.

No LTCG tax benefit on some Mutual Funds:

Investments in debt mutual funds will now be taxed as short-term capital gains, meaning that investors will no longer receive long-term tax benefits on these investments.

Market Linked Debentures (MLDs):

Investment in Market Linked Debentures (MLDs) will now be treated as short-term capital assets, and the grandfathering of earlier investments will end, which will negatively impact the mutual fund industry.

Life Insurance policies:

Proceeds from life insurance premiums over the annual premium of Rs. 5 lakhs will now be taxable from 1 April 2023, but this new income tax rule won't apply to ULIP (Unit Linked Insurance Plan).

Benefits to Senior Citizens:

The maximum deposit limit for the senior citizen savings scheme will be increased to Rs. 30 lakhs from Rs. 15 lakhs. The maximum deposit limit for the monthly income scheme will be increased to Rs. 9 lakhs from Rs. 4.5 lakhs for single accounts and Rs. 15 lakhs from Rs. 7.5 lakhs for joint accounts.

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

From 1 April 2023, there will not be any capital gain tax if physical gold is converted to an Electronic Gold Receipt (EGR) and vice versa.

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