• Notification Date: 02-01-2024
• Notification No: N/A

Income Tax Rules introduced in 2023 that would have an effect in 2024

New Income Tax rules of 2023: 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. 

Significant Income Tax rules that were changed in 2023: 

1. New Tax Regime: The new tax regime was announced in Budget 2020. Between April 2020 and March 2023, the new tax regime was optional. In Union Budget 2023, it was made the default regime. FM Sitharaman said that the old tax regime will be available to taxpayers but in case an individual does not specify the tax regime for TDS from salary or while filing the income tax return, the income tax will then be calculated based on the new tax regime income tax slabs. 

2. New tax slabs: To make the new tax regime more attractive and taxpayers-friendly, income tax slabs under this regime were changed. 

a. Zero tax on income up to Rs 3 lakh 

b. 5% between Rs 3 lakh and Rs 6 lakh 

c. 10% on Rs 6 lakh to Rs 9 lakh 

d. 15% on Rs 9 lakh to Rs 12 lakh 

e. 20% on Rs 12-15 lakh 

f. 30% on Rs 15 lakh 

3. Income Tax Rebate: Before the Union Budget 2023, individuals with an annual income up to Rs 5 lakh were not required to pay any tax. This limit was hiked to Rs 7 lakh. 

4. Standard deduction under New Tax Regime: The standard deduction of Rs 50,000, which was earlier restricted to the Old Tax Regime, was extended to the new tax regime in Union Budget 2023. Following the inclusion, the tax-free income, including the rebate, now stands at Rs 7.5 lakh. 

5. LTCG benefit on debt mutual funds removed: The Centre said that investments made in debt mutual funds after March 31, 2023, will not be eligible for Long Term Capital Gains taxation on withdrawal. This means that capital gains on debt mutual fund units will be taxed as per taxpayers' income slabs. The gains will not be taxed as LTCG with indexation. 
Earlier, debt MFs had the LTCG tax benefit over bank FDs. Investments in debt MFs made till and on March 31, 2023, will be taxed as per old LTCG tax rules. 

6. Reduced surcharge for High-Net-Worth Individuals: FM Sitharaman reduced the surcharge rate on income over Rs 5 crores has been reduced from 37% to 25%. This move brought down the effective tax rate from 42.74% to 39%. This was introduced only under the New Tax Regime. 
Before this, the surcharge (the tax on tax for those with income exceeding Rs 5 crore) was 37% of the tax amount under both the Old and New Tax regimes. This pushed the highest marginal tax rate (including surcharge) to 42.74%. 

7. Taxes on Life insurance maturity money: The Centre said that life insurance maturity money will not be fully exempted from income tax. As per the new rule, if the total premium paid on all non-ULIP life insurance policies exceed Rs 5 lakh in a financial year, then the maturity amount will be taxable. 

The CBDT said that the taxable maturity amount will be calculated only if the life insurance policies meet the specified criteria such as the total amount of premium paid for single or multiple non-ULIP insurance policies. 

For ULIP policies, the maturity amount is eligible for taxes if the premium payable is more than Rs 2.5 lakh in a given financial year. 

8. Cap on capital gains deductions from property sale: The Centre has put a cap of Rs 10 crore on the maximum deduction that can be claimed from capital gains arising from the sale of residential property. 

Taxpayers can claim deductions for this under Section 54 and Section 54F of the Income-tax Act, 1961. Due to this, the Centre has put up a limit on investment in the Capital Gains Account Scheme. 

The new rule, which is already in effect, will impact individuals especially HNIs who sell their old house or residential property and reinvest the money in new property to save tax on LTCG. 

9. IT returns discarded: In 2023, the Income Tax department announced the Discard return option, which allows individuals to completely delete their unverified ITR. With this, taxpayers can delete their previously submitted ITR, which is not verified, and make changes. This would ultimately help the taxpayers in rectifying the errors before the verification process. 

10. TDS on online game winnings: The Centre introduced a new rule wherein it was declared that the TDS on online winnings will be deducted at 30%. Till March 31, 2023, TDS was only applied when the winnings exceeded Rs 10,000 in a financial year. As per the new rule, if the tax is deducted more than your taxable income, then the taxpayers will be required to file ITR to claim an income tax refund.