The government has introduced several new income tax rules that will be applicable from the financial year 2023-24. These Income Tax new rules aim to provide more tax benefits to individuals and make the tax filing process simpler.
Highlights of new income tax rules
Here are some of the key highlights of the Income Tax new rules:
- Higher tax rebate limit under Section 87A – The rebate limit has been increased from Rs 12,500 to Rs 25,000 for those with total income up to Rs 5 lakhs. This will provide higher tax relief to middle-income individuals.
- Work-from-home allowances – A new provision has been introduced to allow deductions on work-from-home allowances paid by organizations to employees up to Rs 50,000 per annum.
- Updated tax slabs and rates – The tax slabs and rates have been updated to provide more tax savings. The new tax regime is now more beneficial for most income levels.
Key changes in tax slabs and rates – Income Tax new rules
Here is a comparison of the old and new tax slabs:
| Total Income | Old Tax Rates | New Tax Rates |
|---|---|---|
| Up to Rs 3 lakhs | Nil | Nil |
| Rs 3-6 lakhs | 5% | Nil |
| Rs 6-9 lakhs | 20% | 10% |
| Rs 9-12 lakhs | 20% | 15% |
| Rs 12-15 lakhs | 30% | 20% |
| Above Rs 15 lakhs | 30% | 30% |
As we can see, the tax rates have been significantly reduced for incomes between Rs 2.5 lakhs to Rs 15 lakhs, providing higher disposable income in this Income Tax new rules.
- Higher capital gains exemption limit – The capital gains exemption limit on from sale of residential houses has been increased from Rs 2 crores to Rs 3 crores. This will reduce taxes on housing gains.
Who will benefit from the new income tax rules?
Here are the key beneficiaries of the new income tax provisions:
- Salaried individuals with a total income of up to Rs 5 lakhs will benefit from the higher Rs 25,000 rebate under Section 87A.
- Individuals earning between Rs 6-9 lakhs will now pay only 10% tax versus 20% earlier. This is a significant reduction of 10%.
- Middle-class earners in the Rs 9-15 lakh income slab also get tax relief ranging from 2.5% to 10% based on their income.
- Work-from-home employees can reduce tax burden using the new work-from-home deductions.
- Senior citizens benefit from a higher basic income tax exemption limit of Rs 3.5 lakhs (vs Rs 3 lakhs earlier).
So in summary, the middle-income group across different income slabs will enjoy higher tax savings and lower tax outgo with the new income tax amendments made in Budget 2023.
New income tax rules for mutual fund investors
The government has also amended income tax provisions related to taxation of income from mutual funds.
- Higher threshold limit for TDS on mutual fund dividends – The threshold limit for TDS on mutual fund dividend income has been increased from Rs 5000 to Rs 10,000 per mutual fund annually. So TDS will apply only if the total dividend income from a mutual fund exceeds Rs 10,000 in a financial year.
- Capital gains on equity funds – The holding period for Long Term Capital Gains (LTCG) on equity funds has been reduced from 24 months to 12 months. So if equity mutual funds are sold after 12 months, that income will qualify for lower LTCG tax rates rather than being categorized as Short Term Capital Gains (STCG).
Both these provisions will be applicable for mutual fund investors from 1st April 2023.
Work-from-home allowances and deductions
As mentioned earlier, under the Income Tax new rules, a deduction of Rs 50,000 per annum is allowed on employer-provided work-from-home allowances.
Here are more details:
- This deduction can be claimed by employees who have been working from home during the financial year
- A declaration form 15E has to be submitted by the employee to avail of this. This form needs to be filed electronically along with the income tax return
- If the employer is not providing any allowance specifically for WFH expenses, employees can still claim a standard deduction of Rs 50,000 each for expenses related to WFH including broadband/WiFi, office furniture, desktop/laptop, etc. The expenses need to be supported by bills and invoices.
So this new work-from-home allowance provision will help reduce taxable income for remote working professionals.
Key changes for senior citizens – Income Tax new rules
Senior citizens will enjoy higher tax benefits with the following changes applicable from FY 2023-24 of Income Tax new rules:
- Higher basic income tax exemption limit – For those above 75 years of age, the basic tax exemption limit has been increased from Rs 3 lakhs per annum to Rs 3.5 lakhs per annum. So reduced taxes for senior citizens in this age group.
- Higher health insurance deductions – The maximum deduction limit for health insurance premiums paid for senior citizens has been enhanced from Rs 50,000 to Rs 1 lakh if they are above 75 years of age. This will allow higher tax savings.
- Deduct TDS only if income exceeds Rs 5 lakh – Currently TDS is deducted for senior citizens if their FD/savings interest income exceeds Rs 50,000 in a year. Now, this TDS deduction threshold has been increased to Rs 5 lakh annual income for senior citizens above 75 years of age.
Key takeaways
Here are the key takeaways from the new income tax rules:
- Rebates, changed tax rates and higher exemption limits will increase disposable incomes and provide relief to middle-class taxpayers
- Work from home, health insurance deductions along with higher standard deductions boost tax saving options
- Equity mutual fund investors get lower LTCG taxation while debt fund investors enjoy higher TDS threshold
- Senior citizens get special benefits with higher basic exemption limits, insurance deductions, and TDS rule changes
Overall, the new income tax amendments provide substantial tax relief and simplify return filing for most categories of taxpayers.
Frequently Asked Questions in the Income Tax new rules
Here are answers to some common questions on the new income tax rules:
What is the major benefit of the new tax rates?
The key benefit is reduced tax rates for middle-income groups between Rs 6-15 lakh annual income, resulting in higher take-home salaries. Tax reductions ranging from 2.5% to 10% of income will boost disposable income.
How can work-from-home employees reduce their tax liability?
Work-from-home allowances of up to Rs 50,000 per annum have been permitted as deductions under the new rules. Employees can submit declaration Form 16E and reduce their taxable income.
What are the new income tax rules for senior citizens?
Those above 75 years of age now have a higher basic exemption limit of Rs 3.5 lakh instead of Rs 3 lakh earlier. They can also claim higher deductions on health insurance premiums up to Rs 1 lakh. TDS applies only if annual income exceeds Rs 5 lakh.
What is the limit for the LTCG period for equity funds now?
The LTCG period for equity funds has been reduced from 24 months to 12 months. So if equity funds are sold after 12 months of purchase, the gains will qualify for lower LTCG tax rates instead of normal income tax rates.
Can an employee claim deductions without any official WFH allowance from the employer?
Yes, even if the employer does not give any official WFH allowance, employees have the option to claim the standard deduction of Rs 50,000 on actual WFH expenses like broadband, furniture, etc. supported by necessary invoices and receipts.
So in summary, the wide range of changes in the latest income tax amendments provide substantial tax savings for most categories of individual taxpayers.