New financial year: New rules for investors

From April 1, new income tax rates will come into effect. From now on, the new tax regime will be the default regime. Under the new tax regime, people earning up to Rs 7 lakhs per annum don’t have to pay taxes.

It is the beginning of the new financial year 2023-24, individuals and investors should note a couple of significant amendments that the Central government would be following now.

1)      New tax regime

From April 1, new income tax rates will come into effect. From now on, the new tax regime will be the default regime. People who want to save taxes under the old regime, need to declare it in their forms.

Under the new tax regime, the basic exemption limit has been raised to Rs 3 lakh from Rs 2.5 lakh. The tax rebate has been extended on income up to Rs 7 lakh as per Section 87A, as against Rs 5 lakh.  

2)      Changes in Income Tax slabs

The Union Budget 2023 tweaked the tax slabs under the new income tax regime. There will be no tax for income of up to Rs 3 lakh. Income above Rs 3 lakh and up to Rs 5 lakh, will be taxed at 5%. For income of above Rs 6 lakh and up to Rs 9 lakh, the income tax will be applicable at a 10% rate.

For income of more than Rs 12 lakh and up to Rs 15 lakh, income will be taxed at a 20% rate. For those who have a taxable income of above Rs 15 lakh, a 30% income tax rate will be applicable.

Tax-free income for salaried individuals has now gone up to Rs 7 lakh per annum from Rs 5 lakh today.

The new tax slabs are effective from April 1, 2023

0- Rs 3 lakh: Nil

Rs 3-6 lakh: 5%

Rs 6-9 lakh: 10%

Rs 9-12 lakh: 15%

Rs 12-15 lakh: 20%

Above Rs 15 lakh: 30%

3)      Standard deduction

From now on, the standard deduction for salaried employees will be a part of the 'new tax slab'. A standard deduction of Rs 50,000 has been passed on to both old and new income tax regimes.

Each salaried person with an income of Rs 15.5 lakh or more can benefit by Rs 52,500 as the standard deduction.

4)      Reduced surcharge for HNIs

Finance minister Nirmala Sitharaman reduced the highest surcharge rate from 37%  to 25% High Net Worth Individuals, earning more than Rs 5 crore a year, would choose the new tax regime.

From April 1, 2023, all income above Rs 2 crore would be subject to a 25% surcharge. This will bring down the highest tax rate from 42.74% to 39% giving major relief to high-earning individuals.

Taxation of services, investment tools

5)      TDS on online gaming

Online games and proceeds from it will attract tax deducted at source (TDS) from April 1, 2023. 

TDS on winnings from online games will be deducted for every rupee earned, net of entry fees (if any).

6)      Reduced TDS on EPF withdrawals for non-PAN cases

In case of withdrawals, where the EPF account is not linked with the account holders' PAN card, the TDS rate will be slashed to 20% from April 1.

7)      Tax exemption up to Rs 25 lakh on leave encashment

From April 1, the leave encashment allowance for non-government employees will be exempted up to Rs 25 lakh. Earlier, it was just Rs 3 lakh.  

8)      No tax on physical gold conversion to an e-gold receipt

FM Nirmala Sitharaman during her Budget speech said there will not be any capital gain tax if physical gold is converted to an Electronic Gold Receipt (EGR) and vice versa from April 1, 2023.

9)      Proceeds from life insurance premiums

From April 1, 2023, proceeds from life insurance premiums more than the annual premium of Rs 5 lakh would be taxed. This will not impact the tax exemption provided to the amount received on the death of the insured person.

This will, however, not impact the taxation of unit-linked insurance plans (ULIPs), term insurance, and old policies.

10)  Sub-limits on expenses and commissions of policies for agents

IRDAI will remove the cap on commission payments to agents, aggregators, and brokers from April 1, 2023. It has revised Expenses of Management (EOM) for the industry.

Earlier, there was a cap on commission payments with an overall cap on expenses of management of insurers.

11)  New cap on reinvestment of capital gains from housing property sale

The Centre will impose a Rs 10 crore cap on the reinvestment of capital gains from the sale of housing property under the provisions of Sections 54 and 54F of the Income Tax act.

Section 54 of Income Tax allows a taxpayer to claim benefits on selling a residential house and acquiring another from the sale proceeds.  

Section 54F offers tax on the long-term capital gains from the sale of any capital asset other than a house property.

12)  Debt funds will not have LTCG tax benefit

From April 1, 2023, investments in debt mutual funds will be taxed as short-term capital gains. The long-term capital gains provision and 20% tax with indexation benefit will not be available on debt MFs.  

Also, debt funds held for more than three years will not enjoy indexation benefits.  

13)  Investments in market-linked debentures will be short term

From April 1, 2023, investment in Market Linked Debentures (MLDs) will be short-term capital assets. Market-linked debentures(MLDs) are non-convertible in nature where the returns are not fixed but linked to the market. With this rule, grandfathering of earlier investments will end and the impact on the mutual fund industry will be slightly negative.

The grandfather clause is part of a new rule or law that does not apply to a particular group of people, allowing them to continue following the old rule or law.

14)  Higher capital gain taxes under Section 24 of the IT Act

Section 24 allows a deduction on the interest paid on a house loan up to a maximum of Rs 2 lakh in a given fiscal year in case of self-occupied property.  

From April 1, the cost of acquisition and the cost of the improvement will not be included in the amount of interest claimed under Section 24.  

So, the capital gain on the sale of the property will be higher and double deductions claimed by the taxpayer will be removed.

15)  UPI wallet transactions new rule

The National Payments Corporation of India (NPCI) recently notified that an extra interchange fee of up to 1.1% will be levied on transactions of more than Rs 2,000 via prepaid payment instruments (PPI) like online wallets or pre-loaded gift cards, etc.

The interchange fee is only for card payments and not for the bank account to bank account-based UPI payments. Merchants also won't pay until and unless they agree to accept and are okay to pay any charge levied by the QR company.

16)  Changes in small savings schemes

The Centre has raised the maximum deposit limit for Senior Citizen Savings Scheme (SCSS) has been hiked to Rs 30 lakh this fiscal. The maximum deposit limit for Monthly Income Scheme (MIS) has been increased from Rs 4.5 lakh to Rs 9 lakh for a single account and from Rs 9 lakh to Rs 15 lakh for a joint account, both effective from April 1.

Besides, the government has brought in a one-time new small savings scheme — the Mahila Samman Bachat Patra — from April 1.

17)  New NPS rule

The PFRDA has mandated that certain documents be uploaded by subscribers to speed up and simplify annuity payments after exiting the National Pension System (NPS). The rule is applicable from April 1. These documents are the NPS Exit/ Withdrawal Form, Proof of Identity and Address as specified in the Withdrawal form, Bank account Proof, and a copy of the PRAN card.

18)  Increase in repo rate by RBI

The Reserve Bank of India’s first monetary policy announcement of the financial year 2023-24 is on April 6.

The Monetary Policy Committee (MPC) increased the repo rate by 250 basis points in the financial year 2022-23 to 6.50 percent. One basis point is one-hundredth of a percentage point. The consecutive rate hikes since May 2022 were to control the rising inflation.

Economists expect the RBI to hike the repo rate by another 25 basis points in April before taking a pause.

If there is another rate hike, banks will once again increase interest on home loans and other loans linked to the repo rate as an external benchmark, as per the terms of loan agreements.

19)  Purchase gold jewellery and gold artifacts with HUID number

From April 1, only hallmarked gold jewellery with a Hallmark Unique Identification (HUID) number shall be permitted to be sold at all jewellery stores in India. HUID number is a six-digit alphanumeric code. It will be given to every piece of jewellery at the time of hallmarking and will be unique for every piece of jewellery. It offers transparency and the buyer can get a true valuation of the gold purchased.

20)  SEBI to discontinue payment through demand drafts

Capital markets regulator Sebi discontinued the option of payment through demand draft for intermediaries and asked them to pay fees and penalties only through digital mode.