Revised Income Tax Regulations Implemented in 2023 with Implications for 2024

In the Union Budget of 2023, the Indian government unveiled a number of new income tax regulations. The New Income Tax Regime’s designation as the default tax regime was one of the major announcements pertaining to personal taxes.

Union Finance Minister Nirmala Sitharaman said in her budget speech for 2023–2024 that budget proposals under the new income tax regime will leave more money in the hands of the people and that it is their decision as to where to invest their money, not the government’s, to do so.

 

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Key Modifications to Income Tax Regulations in 2023

New Tax Regime

In Budget 2020, the new tax structure was disclosed. The new tax system was optional between April 2020 and March 2023. It was established as the default regime in the Union Budget 2023. FM. Sitharaman stated that while taxpayers will still be able to use the previous tax regime, income tax will be computed using the new tax regime’s income tax slabs if a taxpayer fails to indicate which tax regime they wish to use for TDS from their salary or when filing their income tax return.

New tax slabs

Income tax slabs under the new tax regime were modified to make it more enticing and taxpayer-friendly.

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 Income Tax Rebate

Individuals with annual incomes up to Rs 5 lakh were exempt from paying any taxes prior to the Union Budget 2023. This cap was increased to Rs 7 lakh.

Standard deduction under New Tax Regime

In the Union Budget 2023, the standard deduction of Rs 50,000—previously limited to the Old Tax Regime—was expanded to include the new tax regime. The tax-free income, including the rebate, is now Rs 7.5 lakh as a result of the inclusion.

Tax Implications for Maturity Payouts from Life Insurance

According to the Center, the maturity proceeds of life insurance policies will not be entirely free from income tax. The maturity amount will be taxed under the new rule if the total premium paid on all non-ULIP life insurance policies exceeds Rs 5 lakh in a financial year.

According to the CBDT, the taxable maturity amount will only be determined if the life insurance policies satisfy certain requirements, like the total premium paid for one or more non-ULIP insurance policies.

If the premium for a ULIP policy is paid in more than Rs 2.5 lakh during a particular financial year, the maturity amount is taxable.

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Limit on Deductible Capital Gains from Property Sales

The maximum deduction from capital gains resulting from the sale of residential property has been capped by the Center at Rs 10 crore.

Under Section 54 and Section 54F of the Income-tax Act of 1961, taxpayers are eligible to deduct this from their taxes. As a result, the Capital Gains Account Scheme investment cap has been implemented by the Center.

Individuals, particularly HNIs who sell their old homes or residential properties and reinvest the proceeds in new properties to avoid paying LTCG taxes, would be impacted by the recently implemented rule.

Elimination of Long-Term Capital Gains Advantage for Debt Mutual Funds

According to the Center, investments placed in debt mutual funds after March 31, 2023, will not be subject to withdrawal taxes on long-term capital gains. This implies that the income slabs of taxpayers will determine how capital gains on debt mutual fund units are taxed. The gains are not subject to indexation-based LTCG taxation.

In the past, bank FDs did not offer the LTCG tax benefit to debt MFs. Investments made in debt mutual funds through March 31, 2023, will be subject to taxation under the previous LTCG tax regulations.

Lower Surcharge Applicable to High Net Worth Individuals

The surcharge rate on income above Rs 5 crores was lowered by FM Sitharaman from 37% to 25%. The effective tax rate was reduced by this action from 42.74% to 39%. This was only implemented as part of the New Tax Regime.

Prior to this, under both the Old and New Tax regimes, the surcharge—the tax on tax for individuals with income above Rs 5 crore—was 37% of the total tax amount. The maximum marginal tax rate (including the surcharge) was raised to 42.74% as a result.

 

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Tax Deduction at Source (TDS) on Winnings from Online Gaming

The Center announced a new regulation stating that a 30% TDS would be applied to online prizes. Up until March 31, 2023, TDS was only imposed in cases where a financial year’s earnings exceeded Rs 10,000. According to the new regulation, taxpayers will need to file an ITR in order to request an income tax refund if the tax deduction exceeds their taxable income.

Read More: Six Income Tax notices that a salaried individual may receive

Income Tax Returns Dismissed

The Income Tax Administration unveiled the Discard return option in 2023, enabling people to fully erase their unverified ITR. With this, taxpayers can make modifications and remove their previously submitted, unverified ITR. In the end, this would assist the taxpayers in fixing the mistakes made before to the verification procedure.