From changes in new tax regime to capital gains and more, how Budget 2023 affects personal finance

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Finance Minister Nirmala Sitharaman unveiled the 'first budget of Amrit Kaal' to instil fresh optimism, maintain reforms and ease of doing business, and lay the groundwork for India's next 25 years of development into an economic superpower.

The budget includes significant capital investments in the agriculture and infrastructure sectors, as well as revised tax slabs that will benefit the taxpayer community.

Also Read: ITR filing last date for FY 2022-23 (AY 2023-24): Due dates for income tax returns filing, TDS, advance tax payments

Impact on your personal finance

Senior Citizen Savings Scheme investment limit increased

Budget 2023 increased the maximum investment amount for the Senior Citizen Savings Scheme (SCSS) from Rs. 15 lakh to Rs. 30 lakh. The government increased the interest rate on the Senior Citizens' Savings Scheme (SCSS) to 8 percent for the fiscal quarter ending March 31, 2023.

The cap of Rs 15 lakh limit prevented many senior citizens from making use of the scheme, therefore this increase is a positive decision. The scheme is one of the most secure and trustworthy investing options for elderly citizens because it is a government-backed modest savings programme. It offers a high-interest rate and is one of the most advantageous investment options, especially when compared to more conventional ways such as FD (fixed deposits) and savings accounts. Fixed deposit rates are currently being hiked. However, this is a fantastic step for many senior citizens as they will be directly investing with the central government. There is also a tax deduction available up to Rs. 1.5 Lakh under section 80C of the Income Tax Act.

New tax regime 

Unless the taxpayer decides to choose the old regime, the new tax regime will be the default.

One must be cautious while picking which regime to follow. And if you do not choose the old regime, you will automatically fall under the new regime. Taxpayers who used to choose the old tax regime because of ongoing investments such as insurance premiums amounts invested in provident funds and public provident funds, and outgoings such as home loan EMIs, and tuition fees for children's education, will have to choose the old regime. If they don't, they will lose the benefit of these investments under various sections such as sections 80C, 80D, and so on.

Also Read: The 'Goldilocks' budget for growth

Enhancement of rebate under 87A

The new tax regime increased the section 87A rebate from the previous income threshold of Rs. 5 lakh to Rs. 7 lakh. Therefore, individuals with income up to Rs 7 lakh will not pay any tax.

Personal income tax rate

The basic exemption amount is increased under the new income tax regime in Budget 2023 from Rs 2.5 lakh to Rs 3 lakh. Additionally, the new tax regime has modified the income tax slabs. According to the proposal, there would be five income tax slabs instead of six in FY 2023–24.

The income tax slabs under the new income tax regime will be as follows:

a) Between Rs 0 to Rs 3 lakh - 0% tax rate

b) Between Rs 3 to 6 lakh - 5%

c) Between Rs 6 to 9 lakh - 10%

d) Between Rs 9 lakh to Rs 12 lakh - 15%

e) Between Rs 12 lakh to Rs 15 lakh - 20%

f) Above Rs 15 lakh above - 30%

Taxes for individuals making Rs 9 lakh a year will only pay Rs 45,000, i.e. five percent of their income and a 25 percent decrease from the Rs 60,000 they were previously paying. Similarly, those making Rs 15 lakh would only have to pay Rs 1.5 lakh, or 10 percent of their income. Currently, they pay a tax of Rs 1,87,500 annually.

This is a fantastic measure that will assist many middle-class and young earners improve their take-home pay, allowing them to invest more and build money for their future. I will advise everyone to use their surplus funds to start a new mutual fund sip or to use this planned saving towards their emergency fund and future security.

Increase in the standard deduction

A base amount known as the standard deduction is not subject to tax. The budget has also increased the annual standard deduction from Rs 50,000 to Rs 52,500. This will help save a marginal amount.

Reduction in surcharge  

Indians who make more than Rs 5 crore annually are liable to pay 42.74 percent in taxes—one of the highest rates in the world. To benefit them, the maximum effective tax rate for wealthy taxpayers has been decreased from 42.7 percent to 39 percent.

This might help them save a minimum of Rs 10 lakhs, and even more for those with higher income levels beyond Rs 5 crores.

Also Read: Budget 2023 shows continuity in supporting tech startups beyond big cities

Capital gain under sections 54 and 54F

The government limits capital gains tax deductions on investments in residential homes to Rs 10 crore. This move will affect the rich class with capital gains of over Rs 10 crores.

You must be aware of the current income tax regulation for income from capital gains on the sale of a house or capital assets. By reinvesting the sale proceeds in a new residential property, one can save the full tax gained on selling by using the benefit of section 54 or 54F of the income tax act. Therefore, the entire amount is subject to following the provisions of these two sections going tax-free. However, the tax incentive is no longer available beyond a gain of Rs 10 crore on selling your capital asset. Thereby, requiring those with a higher net worth to pay additional capital gains taxes on the gains above Rs 10 crore.

Income Tax portal

The number of returns completed exceeded 6.5 crores, and the average processing time was reduced from 93 to 16 days in FY22-23. The finance minister announced that they would continue to strengthen the system and address grievances more fairly and equitably.

Many taxpayers are receiving refunds far more quickly. But the faceless assessment and grievance redressal are still not up to par. Further education is required for both tax officials and taxpayers.

Streamlining KYC process

Finance Minister also proposed streamlining the Know Your Consumer (KYC). The very first stage in opening bank accounts, updating personal information, investing in insurance and mutual funds, or other financial transactions is known as KYC. Using the government-provided digital locker infrastructure, which could hold important papers such as the PAN and Aadhaar, a risk-based procedure and KYC requirement would be implemented.

Currently, different organisations use diverse sets of documents, so this is a move in the right direction to further standardise the procedure across industries.

Income from life insurance policies

The budget proposed a rule that only those plans with aggregate premiums up to Rs 5 lakh would have their income exempted in cases where the total premium for life insurance policies (other than ULIP) issued on or after 1 April 2023 is greater than Rs 5 lakh. The tax exemption granted to the sum paid upon the insured person's death will not be impacted by this. Additionally, it won't apply to insurance contracts issued before March 31, 2023.

Positively, this will increase awareness of term plans and pure-risk insurance while decreasing people's desire to buy high-premium policies. Additional unit link insurances may be quickly obtained in the wake of this news; one should avoid doing so without understanding their risk profile. This announcement caused stock prices for insurance companies to plummet by 10 percent across the board, indicating the impact of this announcement on their financial performance and future business. Despite the low penetration of the insurance market in India, which has prevented it from taking off, investors should always develop a plan based on their risk tolerance and level of industry knowledge before investing in any companies in that sector.

Digi-locker

The finance minister suggested creating a one-stop store for updating identifying documents for the government-based digital lockers. Since few people currently utilise this facility, taking this action should increase its popularity and help it transition to a fully digital society.

Presumptive taxation limits enhanced

Several initiatives have been announced to help small enterprises, including raising the presumptive taxation thresholds for MSMEs and professionals with an annual turnover of up to Rs 2 crore and Rs 50 lakh, respectively. For taxpayers whose cash receipts represent no more than five percent of overall receipts, these turnover limits are raised to Rs 3 crore and Rs 75 lakh, respectively.

Many professionals and MSMEs will benefit from having access to this additional 50 percent higher limit to avoid having to save and maintain books of accounts. It’s time for them to reach out to their tax consultants to weigh the pros and cons of going for the presumptive tax regime.

The author is a Chartered Accountant and founder of NRP Capitals.

The thoughts and opinions shared here are of the author.