• Notification Date: 29-03-2023
• Notification No: N/A

No LTCG Tax Benefit on Debt MFs: 9 Big Changes under the New Income Tax Regime

From April 1, 2023, the Finance Ministry will introduce some significant changes in the income tax rules. The changes will range from the adoption of the new income tax regime, tweaked income tax slabs to no LTCG tax benefit on some of the debt mutual funds. Here’s the complete list of changes taxpayers and investors should take a note of. 

1) New Default Income Tax Regime 

Finance Minister Nirmala Sitharaman during her Budget speech said that from April 1, 2023, the new income tax regime will act as the default tax regime. Taxpayers will be given a choice to choose their regime, in case they don’t, the income tax will be calculated as per the new tax regime. 

The new tax regime, which was introduced in the 2020 Budget, is known as the 'Simplified Tax regime,' and offers reduced tax rates if the taxpayer is ready to forego some deductions and exemptions during income tax calculations. 

Under the new regime, people earning up to Rs 7 lakhs per annum don’t have to pay taxes. 

2) Tax rebate 

From April 1, 2023, the tax rebate under Section 87A will be hiked to taxable income level of Rs 7 lakh from Rs 5 lakh. The amount of tax rebate has doubled to Rs 25,000 from Rs 12,500. 

For salaried people and pensioners, from April 1, the new system's standard deduction for taxable income exceeding Rs 15.5 lakh will be Rs 52,500. 

There is no change in the standard deduction of Rs 50,000 provided to employees under the old tax regime. 

3) 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 per cent. 

For income of above Rs 6 lakh and up to Rs 9 lakh, the income tax will be applicable at a 10 per cent rate. 

For income of more than Rs 12 lakh and up to Rs 15 lakh, income will be taxed at a 20 per cent rate. 

For those who have a taxable income of above Rs 15 lakh, a 30 per cent income tax rate will be applicable. 

Details about the New Tax Slabs effective from April 1, 2023 

a. Upto Rs 3 lakh: Nil 

b. Rs 3-6 lakh: 5% 

c. Rs 6-9 lakh: 10% 
d. Rs 9-12 lakh: 15% 

e. Rs 12-15 lakh: 20% 
f. Above Rs 15 lakh: 30% 

4) No LTCG Tax Benefit on Debt MFs 

From April 1, 2023, investors putting their money in debt mutual funds should note that the amount will be taxed as short-term capital gains. The long-term capital gains provision and 20 per cent tax with indexation benefit will not be available on debt MFs. The existing investments will continue to get this benefit. 

5) Life and Term Insurance policies 

From April 1, 2023, proceeds from life insurance premiums over 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. 

Finance Minister Nirmala Sitharaman said that under the Budget 2023, the new income tax rule won't cover Unit Linked Insurance Plan (ULIP). 

6) Leave Travel Allowance 

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. 

7) No tax on Physical Gold conversion to E-gold Receipt 

Finance minister 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. 

8) Reduction in Surcharge for HNIs 

Finance minister Nirmala Sitharaman reduced the highest surcharge rate from 37 per cent to 25 per cent High Net Worth Individuals who would choose the new tax regime. 

Currently, individuals are subject to graded surcharge rates which range up to 37 per cent in case the income of the taxpayer exceeds Rs 5 crore. 

9) Taxation of MLDs 

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.