How will Budget 2023 tax changes impact investors?

Here are some of the major tax announcements investors must know about:

Increase of Tax Rebate limit to Rs. 7 Lakh
Under the new tax regime, the rebate for income tax has been increased to Rs 7 lakh from the earlier limit of up to Rs 5 lakh. The budget announced that the new income tax regime will now be the default regime, but taxpayers can opt for the old regime. Now anyone earning up to Rs 7.5 lakh is kept outside the purview of income tax.

Common Income Tax Return (ITR) Form
To make tax compliance more efficient, a next-generation Common Income Tax Return (ITR) Form will be introduced. It will save time and improve taxpayers’ services. The Central Board of Direct Taxes (CBDT) proposed to introduce the common income tax return form last year. It appears that the focus is now on technology-based tax governance.

Grievance Redressal Mechanism
The finance minister announced strengthening the grievance redressal mechanism to improve services for taxpayers. The Income Tax Department seeks to make tax compliance easy and smooth by introducing effective grievance mechanisms in tax matters.

New Regime: Tax Slabs 2023
The budget introduced a major revamp in the income tax slabs under the new regime. The change in slabs will give relief to taxpayers under the new regime.

Below are the new tax slabs:

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Concessional Tax
The budget brings down the maximum marginal rate of tax, which stands at 42.744%, to 39% by lowering the surcharge on incomes over Rs 5 crore to 25%. People with incomes over Rs 5 crore will now consider shifting to the new concessional tax regime. With this initiative, the government wants to promote a new tax regime and wants more and more people to opt for it.

Leave Encashment Exemption
The non-government employees who cannot use their leaves have something to cheer about. The budget proposed to raise the limit for tax exemption on leave encashment on retirement for non-government salaried employees to Rs 25 lakh.

Exemption for Insurance Policies
The budget takes away the tax benefit from insurance policies issued on or after April 1, 2023, whose annual premium is above Rs 5 lakh. If proceeds are received after the death of the insured person, the tax exemption will continue. However, this budget proposal will not impact the taxation of unit-linked insurance plans (ULIPs), term insurance and old policies.

TDS Rate reduced For Non-PAN Cases
The TDS rate has been proposed to reduce the taxable portion of EPF withdrawals in non-PAN cases from 30% to 20%. This reduction will help those whose PAN still needs to be updated in the EPFO records.

No Capital Gains on Conversion of Gold
To encourage electronic gold buying, the budget laid down that there would be no capital gains tax if physical gold is converted to an Electronic Gold Receipt (EGR). Gold is an asset, and many Indian households continue to possess physical gold. The idea is to promote electronic gold and give a tax rebate to people looking to transfer their physical gold into electronic receipts.

Returns from MLDs to be Taxed
The budget has removed the exemption from TDS on interest payment on listed debentures which was available under Section 193 of the Income Tax Act. Till now, MLDs have attracted just 10% tax if held for more than 12 months. That is why it became popular among HNIs. To tax the capital gains from the redemption, maturity or transfer of these securities as short-term capital gains, the government has now proposed to insert a new section 50AA in the Income Tax Act.

The changes will likely impact investors in Market Linked Debenture (MLDs), wherein investors benefit from long-term capital gains rates at 10 per cent. This amendment will take effect from April 1, 2024, and apply from the assessment year 2024-25.

Mutual funds are going to be benefitted as they enjoy long-term capital gains tax treatment with indexation benefits.

Liberalised Remittance Scheme (LRS)
According to the budget 2023 document, an upfront tax of 20% would be collected at source for any investment or spending under the liberalised remittance scheme. However, remittances to education and medical care will be exempted from this new rule. The new rule may impact people who invest in international stocks under the LRS scheme. It will apply to investments and high purchases like real estate.

Long-Term Capital Gains on Sale of Property
Earlier, the long-term capital gains on the sale of residential property was exempted from tax if the capital was reinvested in a new residential house. The government has now put a cap of Rs 10 crore on calculating the exemption.

Winning From Online Games
A 30 per cent tax on the winnings from online games. The budget removed the existing minimum threshold limit of Rs 10,000. Earlier, TDS was calculated on the minimum threshold limit. However, for lottery and puzzle games, the threshold limit of Rs 10,000 will continue. Winnings from online games are taxed as income from other sources.

Presumptive Taxation Scheme
The budget increased the threshold limits for presumptive schemes of taxation for specified professions from a turnover of Rs 50 lakh, now up to Rs 75 lakh. It has been done to promote non-cash transactions.

Investors must pay attention to changes that are going to happen from April 1, 2023, and make adjustments to their investments according to new rules. They must also factor in tax liabilities and new exemptions introduced in this year’s budget.

Adhil Shetty is the CEO of Bankbazaar.com