The government’s recent announcement of the Union Budget 2023 has had a considerable influence on the taxability of a number of tax-saving investments. Let us discuss how these changes may affect individuals and businesses with an in-depth analysis of the implications.
In the Indian democratic set-up, when a Finance Minister presents the Union Budget, it is indeed a hard task to please all the sections of the society. The Budget is the government’s statement where it outline’s the revenues and expenses for the coming year/ years. It includes proposals for government spending, changes in taxation systems, and the initiatives the government plans to take to boost the economy and other economic issues.
Just like always, the expectations were high from FM Nirmala Sitharaman, who presented her last full-fledged Budget before the Lok Sabha election 2024. While there were no major changes made to the tax regimes, the budget surely brought some changes to tax-saving investments. Let us take a look at the impact of budget changes on some of the most popular tax-saving investments and understand more about how to save tax:
1. Increase in the tax exemption limit
One of the major changes proposed has been the increase in the tax exemption. The FM increased the threshold from INR 5 lakhs to INR 7 lakhs for the upcoming financial year. So, basically, the number of tax slabs has been reduced to five now.
|Income tax slabs under the New Tax Regime||Income tax rates under the New Tax Regime FY 2023-24|
|0 to Rs 3 lakh||No tax|
|INR 3 lakh to INR 6 lakh||5% on the income that is above INR 3 lakh|
|INR 6 lakh to INR 9 lakh||INR 15,000 + 10% on the income that is above INR 6 lakh|
|INR 9 lakh to INR 12 lakh||INR 45,000 + 15% on the income that is above INR 9 lakh|
|INR 12 lakh to INR 15 lakh||INR 90,000 + 20% on the income that is above INR 12 lakh|
|Income above INR 15 lakh||INR 1,50,000 + 30% on the income that is above INR 15 lakh|
2. Equity Linked Saving Scheme (ELSS):
Most financial experts believe that the highest surcharge rate lowered to 25% from 37% would make ELSS investments a little less appealing, especially to those who have a taxable income of up to INR 7 lakhs. Let us take this example, for an individual who has an income of INR 15.5 lakhs, the total tax deductions should be INR 4.25 lakhs for the breakeven. However, after the deduction, the benefits that are received by the individual may be nominal.
Therefore, there may be a decrease in the popularity of ELSS from the next year. As an investor, you would now need to look at ELSS more as a way to create wealth rather than just to save on taxes. But you should also remember that at a time when the market is so volatile, the 3-year lock-in of the ELSS brings more disciple to your saving habits and consequently reap better returns.
3. Life and health insurance:
While most financial experts suggest that insurance should not be bought with the sole aim of tax-saving, there is no denying that life and health insurance do offer major tax benefits as well. Under Section 80C of the Income Tax Act, 1961, you can avail of a tax deduction of up to 1.5 lakhs on the premiums that you pay toward the life insurance premiums. In the Budget 2023, Sitharaman announced that life insurance premiums that exceed INR 5 lakhs a year would be taxed from April 1, 2023. Under Section 10(10D) of the Income Tax Act of 1961, the death benefit remains out of the taxable income.
Under health insurance, the premiums that you pay for your spouse, your children, and your parent’s health insurance plan, you can get a tax benefit of up to INT 1 lakh as per Section 80D of the IT Act. When you buy health insurance online, there are more savings that come your way. Along with deals and discounts, health insurance online is quicker and more convenient as well.
4. Leave encashment exemption:
A welcomed step, the Budget proposed raising the tax exemption limit on the leave encashment of non-government salaried employees on their retirement to INR 25 lakhs.
5. Capital gains on gold conversion:
In a move to encourage the electronic sale/ purchase of gold, the FM announced that if physical gold is exchanged for EGR, Electronic Gold Receipt, no capital gain tax would be applicable. Like most Indian households, if you also possess gold, then it may be the right time to transfer it into electronic receipts.
6. Long-term capital gains on property:
So far, in the case of long-term capital gains on the sale of a house/ residential property, the tax was exempted if the money was invested in a new residential property. However, the new Budget announces a cap of INR 10 crores for this exemption.
7. Common ITR:
Another proposal has been the Common Income Tax Return Form, which is considered to be a more efficient and easier way to file ITRs. For those who are figuring out how to save tax, the new system, introduced last year by the Central Board of Direct Taxes, is supposed to save time and focus on technology-based tax filing.
8. Concessional Tax:
The recent Budget also brings down the highest marginal rate of tax, which is currently 42.744%, to 39% by lowering the surcharge on incomes over INR 5 crore to 25%. In simple words, people who earn over INR 5 crores may now consider moving to the new concessional taxation system.
9. TDS rate:
There was a 30% TDS, tax deducted at source, on withdrawal of EPF for the individuals who do not have their PAN details updated in their EPF account. The TDS has been reduced to 20% to help those who still need to update their PAN in their EPFO records.
10. Online game winnings:
Online game winnings, such as lottery and puzzles, that go over INR 10,000 will attract a 30% tax. However, Budget 23 removed the existing threshold from all such other sources.
11. Returns from Market Linked Debentures:
The Budget has abolished the TDS exemption on payment of interest on listed debentures, which was till now allowed as per the Income Tax Act’s Section 193. Earlier if held for over 12 months, the MDLs were liable for a 10% tax.
The Budget 2023 introduced a number of significant amendments to facilitate economic growth and the system of taxation and also rectified the existing gaps. The Finance Minister encouraged the taxpayers to opt for the new tax regime. While paying your taxes sincerely and timely is the responsibility of every earning citizen, it is also important to understand how to save tax. A few simple and easy steps can help you save efficiently and make the most of your investments.