Changes in Taxation effective 1st April 2023

Top 13 New Rules & Changes in Taxation implemented effective 1st April 2023 that Investors need to know

Changes in Taxation effective 1st April 2023

New financial year has just begun. As mentioned in Budget 2023 & Finance Bill 2023 by the Central Government, there are some changes in existing taxation rules and some new rules are announced, which have come into effect from 01.04.2023.

Let’s see the new rules, amendments & investment guidelines that are applicable from 01.04.2023.


New Income-tax regime for taxpayers

Until F.Y.22-23, the Old-tax regime was the default choice for taxpayers. If they want to save taxes, they have to change the regime. However, from 1st April 2023, the new tax regime will be the default regime while calculating taxes. If taxpayers intend to avail some deductions/exemptions under the old regime, they need to change the regime and declare the same.

In the Budget 2023, the basic exemption limit has been increased to Rs 3.00 lakh from Rs 2.50 lakh, under the new tax regime. Further the cherry on the top is that the tax rebate has been extended on income up to Rs 7.00 lakhs as per Section 87A, as against earlier Rs 5.00 lakhs.


Changes in Income Tax slabs

There has been a change in income tax slabs under the NEW TAX REGIME in Budget 2023. Tax-free income for salaried individuals has increased up to Rs 7.00 lakhs p.a.

The new tax slabs that are effective from 01.04.2023 are as under,

Rs. In Lakh Tax Rate
0 to 3 Nil
3 to 6 5%
6 to 9 10%
9 to 12 15%
12 to 15 20%
Above 15 30%

Standard deduction

Till date the standard deduction was available only for the old-tax regime. However, from FY 23-24, the standard deduction for salaried employees will be applicable for ‘new tax slab’ as well. A standard deduction of Rs 50,000 has been introduced in the new income tax regime, irrespective of the income.


Surcharge is reduced for High-Net-Worth Individuals

Till date the highest surcharge on the income tax amount was 37%. However, India’s Finance minister Nirmala Sitharaman has reduced the highest surcharge rate to 25%.

Taxable Income Previous Surcharge Revised Surcharge w.e.f. 01.04.2023
Income above Rs. 50 Lakhs to Rs. 1 Crore 10% 10%
Income above Rs. 1 Crore to Rs. 2 Crores 15% 15%
Income above Rs. 2 Crores to Rs. 5 Crores 25% 25%
Income above Rs. 5 Crores 37% 25%

To avail this benefit, taxpayers have to select new tax regime. There is no change in surcharge for the old tax regime.


TDS is introduced on online gaming

As per Finance Bill 2023, from 1st April 2023 onwards, Tax Deducted at Source (TDS) is applicable for online gaming. Till 31.03.2023, TDS was imposed on winning amounts from online games if it is more than Rs. 10,000/-. However, w.e.f. 01.04.2023, this cap is removed. In short, online gaming companies are required to levy 30% TDS on any earnings (irrespective of winning amount) that customers choose to withdraw.


Debt Mutual funds to lose LTCG tax-benefit/ indexation benefit

As per the Finance Bill passed in 2023, Debt Mutual Funds will lose the indexation benefit on Long-Term Capital Gain w.e.f. 01.04.2023. That means gains from Debt Mutual Funds will be taxed as Short-Term capital gain irrespective of holding period.

Also Read – Change in Taxation Rules for Debt Mutual Funds from 1st April 2023. What should retail investors do


Increase in limit of Tax exemption on leave encashment

Non-Government Employees can encash their unutilized leaves. Till date, leave encashment up to Rs. 3.00 Lakhs was exempted from tax. That means if the encashment amount is more than that, it is taxable. However, with effect from 01.04.2023, the leave encashment allowance for non-government employees will be exempted up to Rs 25 lakh.


Maturity Proceeds from Life Insurance Policies

 Till date the maturity proceeds from Life Insurance Policies is completely tax-free, irrespective of amount. From 01.04.2023, proceeds from Life Insurance Policies whose total premium is more than the of Rs 5 lakh p.a. would be taxable. However, the amount received due to the death of the insured person, would be tax-free.

Please note that the above rule is not applicable in unit-linked insurance plans (ULIPs), term insurance. Taxation of ULIPs remains unchanged.  Further, old policies availed before 31.03.2023, whose premium is more than Rs. 5 Lakh would be tax-free as well. The new rule is applicable w.e.f. 01.04.2023.

Let’s see it with an example.

Suppose you have purchased three Life Insurance Policies after April 2023. The tenure of policy is 10 years and the premiums are of Rs. 2 Lakhs, Rs. 2 Lakhs & 4 Lakhs. Now, the total premium is exceeding Rs. 5 Lakhs. Hence, the maturity proceeds on policy which exceeds Rs. 5 Lakhs would be taxable as income.

Let’s assume the sum received after maturity after 10 years would be Rs. 30 Lakhs, for two policies and Rs. 60 Lakhs for third policy.

Policy No.1 Policy No.2 Policy No.3
Maturity Proceeds 30,00,000 30,00,000 60,00,000
Less: Premium paid

(Amt*No. of years)

20,00,000 20,00,000 40,00,000
Taxable Exempt Exempt Taxable
Taxable Amount in the Maturity year Nil Nil 20,00,000


Higher capital gain taxes under Section 24 of the IT Act

Section 24 of Income Tax Act allows taxpayers to claim a deduction on the interest paid on a housing loan availed up to a maximum of Rs 2 lakh in a year in case of self-occupied property.

From 01.04.2023, the cost of acquisition and the cost of the improvement will not be included in the amount of interest to be claimed under Section 24.

So, the capital gain tax on the sale of the property will be higher.


Extra Fee on UPI wallet transactions

The National Payments Corporation of India (NPCI) recently introduced an extra interchange fee of up to 1.1% that will be charged on merchant (the person or business receiving the payment) UPI transactions of over ₹2,000 using prepaid payment instruments (PPIs) – wallets / cards.

An interchange fee is the fee charged by the receiver bank/payment service provider to the merchant, as NCPI clarifies.

Users must note that this interchange fee is only for card payments and not for the bank account to bank account-based UPI payments. NPCI clarified that bank-to-bank account transfer via UPI (Phone pe/ Google pay) will continue to remain free. Hence, regular UPI transactions (Bank to Bank) will remain free.


Increase in Investment Limit in Small Saving Schemes

Further, the maximum deposit limit for Monthly Income Scheme (MIS) has been increased as well from Rs 4.5 lakh to Rs 9 lakh for a single account and from Rs 9 lakh to Rs 15 lakh for a joint account. These are applicable from 01.04.2023.

In Budget 2023, there is an announcement of increasing the investment limit for Senior Citizen Savings Scheme (SCSS) up to Rs 30 lakh from this fiscal (which was earlier Rs. 15 Lakhs).

New NPS rule

The PFRDA (The Pension Fund Regulatory and Development Authority) has notified that w.e.f. 01.04.2023, certain documents are to be uploaded by subscribers. This change has been made to speed up and ease the process of annuity payments after exiting from the National Pension System (NPS).

These documents are stated as under,

  • NPS Exit/ Withdrawal Form
  • Proof of Identity and Address as specified in the Withdrawal form
  • Bank account Proof
  • Copy of the PRAN card.


STT increased for F&O Segment

STT is the Securities Transaction Tax. F&O segment is Futures & Options market.

As per amendments made in Finance Bill 2023, there is an increase in STT on the sale of options to Rs. 2,100 on a turnover of Rs. 1 crore against an earlier applicable levy of Rs. 1,700.

On the other hand, on the sale of futures contracts, the STT has been increased to Rs. 1,250 on Rs. 1 crore of turnover. Earlier it was Rs. 1,000. On the options side, the STT is charged on premium and not the strike price.


To conclude, rules and regulations related to Finance and Taxation are subject to change every year. Everyone must pay attention to these changes to be in the race. Updating yourself will help you make better financial decisions.


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