April 1 marks the start of the new financial year, which is usually crucial from a personal finance standpoint because the majority of Budget proposals on income tax go into effect on this date. In addition, other changes take effect today that may have an impact on individual budgets. Finance Minister Nirmala Sitharaman announced these measures during her Budget speech this year. Here are some of the significant changes to be aware of, including increased basic exemption limitations, among others.
Income Tax Changes effective from 1st April:
Increased Basic Exemption Limit and Rebate
As promised in the previous Budget, beginning April 1, 2023, the basic exemption level was raised to Rs.3 lakh from Rs.2.5 lakh under the new tax system, while the refund under Section 87A of the Income Tax Act, 1961, was enhanced to Rs.7 lakh from Rs.5 lakh. As a result, under the new regime, persons with taxable incomes of up to Rs.7 lakh will receive a full tax rebate, exempting them from paying any income tax.
Default Adoption of the New Tax Regime
The automatic acceptance of the new tax regime is a significant change. Its goal is to expedite the tax filing process and encourage wider participation in the new regime, which features lower tax rates but fewer deductions and exemptions. However, taxpayers will still be able to continue with the existing tax scheme if it is more favourable to them.
New Tax Slabs
- Income part from Rs.3 lakh and Rs.6 lakh – 5%
- Rs.6 lakh to Rs.9 lakh – 10%
- Rs .9 lakh to Rs.12 lakh – 15%
- Rs.12 lakh to Rs.15 lakh – 20% tax
- Rs.15 lakh and above – 30%
Surcharge Reduced
The highest rate of surcharge, 37% on income beyond Rs.5 crore, has been cut to 25%. This results in a lower effective tax rate for high-income individuals who adopt the new system.
Restoration of Basic Deduction
The standard deduction of Rs.50,000, which was previously only applicable to the old tax regime, has now been included in the new tax regime. This further reduces the taxable income under the new regime.
Exemption for Enhanced Leave Encashment
Since 2022, the leave encashment tax exemption limit for non-government employees has been Rs.3 lakh, which has now been enhanced to Rs.25 lakh.
Taxation of Life Insurance
According to the Finance Minister’s declaration, maturity proceeds from life insurance plans issued on or after April 1, 2023 and with a total premium of more than Rs.5 lakh would be taxed.
