This is literally the theme of the Budget 2023 specially with personal income taxes. And that is the only thing I had wishes for – simplify!
Expert after expert recommended a change in 80C limits, aligning capital gains taxes, increasing tax slabs, etc. The underlying idea was fine – reduce the burden on aam junta which has suffered in times of inflation and Covid.
The budget delivered the same, just a little smartly.
Let’s take the first most important thing to you – the tax slabs.
The tax slabs have been changed but only in the new tax regime.
This is how they will look from April 1, 2023.
|Taxable Income (per year)||Marginal Tax Rate|
|Rs. 0 to 3 lakhs||NIL|
|Rs. 3 to 6 lakhs||5%|
|Rs 6 to 9 lakhs||10%|
|Rs 9 to 12 lakhs||15%|
|Rs. 12 to 15 lakhs||20%|
|Above Rs. 15 lakhs||30%|
Income upto Rs. 3 lakhs is now exempt from tax. Further if your taxable income turns out to be lower than Rs. 7 lakhs in a financial year, then you will get an additional rebate equal to the tax amount. It will make your tax liability zero for that year. (This clause was applicable for upto Rs. 5 lakh income earlier)
The standard deduction will also be available to salaried class and pensioners in the new tax regime.
For those earning Rs. 5 crores or more (eyes rolling), the surcharge is now reduced to 25% from 37% currently. This brings down tax liability quite a bit for the highest tax payer.
Please note again that all the above proposed changes apply only to the new tax regime or slabs as shown in the table above. This new regime will also be the default when you file your tax returns (with an option to go back to the old one with all deductions).
There are NO changes in the OLD tax regime.
The plan is loud and clear – make the new regime attractive enough and then retire the old one.
What should you do?
If you are someone using most of the deductions in various sections such as 80C (PPF, life insurance premia, tax saving funds), 80D (health insurance premium), interest on home loans, HRA, etc., then the old tax slabs might suit you better. (Remember to make the choice when filing your tax returns)
If you are not using those sections, the new tax regime is a no brainer.
[OLD TAX VS NEW TAX – WHICH ONE TO CHOOSE? DOWNLOAD THE CALCULATOR]
Download the calculator above and find out for yourself. Go tax crazy!
Remember, shifting to the new tax slabs doesn’t mean that you stop saving or investing anything that does not give you tax benefits. Let us not throw all the senses to the wind.
You still need life, health and accident/disability insurance for protection. PPF can still be a good allocation for fixed income.
Tax saving or no tax saving – these are important for your personal financial well-being.
Other tax related changes in the budget 2023
- If you are closer to retirement and have accumulated lots of leaves, then rejoice. The exemption limit for leave encashment on retirement is now up to Rs. 25 lakhs.
- Also, if you are a professional or self employed eligible to file under presumptive taxation (ITR 4S anyone?), the eligible turnover limit is now up from Rs. 50 lakhs to 75 lakhs. Thinking of giving up the employee tag and becoming a consultant?
Several other tax arbitrage available for various investment instruments are going away. Here are some of the key ones:
- REITs used to pay a portion of the return to unitholders in the form of Interest, Dividends and Debt Amortisation proceeds. The last one was tax free in the hands of the investor. No more. All income to the investor from REITs and InvITs will now be taxable at marginal tax rate.
- Market Linked Debentures or MLDs which used a market linked benchmark with a bond to create a lower tax structure will stop doing so from April 1, 2024.
- From April 1, 2023, if you buy a life insurance policy with a premium of Rs. 5 lakh or more, then the maturity payouts (on survival) will be taxable. Only receipts in case of death will be tax free. There were too many guaranteed, tax free return policies being offered to highest tax bracket individuals. Beware – pitches will go up massively till March 31, 2023!
- Finally, capital gains offset on real estate transactions is now limited to Rs. 10 crores. Well, for most, this is not a number that we will reach easily. But it is good to see the intention emerging from this – capital gains offset was not meant for rich people. If you have more than Rs. 10 crores of realised capital gains on real estate, please pay the taxes.
The Mutual Funds, indirectly, get a better deal without even a mention of them. 🙂
Saving instrument changes specially for Senior Citizens in Budget 2023
- Senior Citizens can invest Rs. 30 lakhs + Rs. 30 lakhs in a joint manner in the Senior Citizen Savings Scheme (SCSS). This has doubled from the previous limit of Rs. 30 lakhs. If you are under Rs. 7 lakhs total income, the entire interest from SCSS becomes tax free in the new tax slabs.
- Post Office MIS limit also now upped to Rs. 15 lakhs for joint.
Hopefully, over time, we will worry less about taxes and more about making money work for meeting our goals.
If you are interested in reading the budget highlights, you can download from here.
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