Budget 2023 Income Tax Updates

Written by Ravi Sankar Robbi

Updated on:

In this article, let’s quickly understand some major Income Tax updates as released in Budget 2023. There are quite a few small amendments as well, which we will cover in the upcoming articles.

Before discussing these updates, pls do note that all these Budget 2023 updates are applicable for FY 23-24 and will be effective from 1.4.2023 unless otherwise mentioned.

There were lot of expectations regarding the increase in the Basic Exemption limit, 80C limit enhancement & higher deduction for medical expenses. But none of these were addressed in this Budget.

However, Govt has announced some big changes in the New Tax Regime (which was initially introduced in Budget 2020 and effective from FY 2020-21) to make it more lucrative to the tax payers.

So let’s discuss about these updates:

1. No changes in Old Tax Scheme

There are no changes as such in the existing Old tax scheme including the slab rates and Rebate u/s 87A. Only changes is, from FY 23-24 onwards Old scheme becomes the OPTIONAL scheme and New scheme becomes the DEFULAT option.

2. Changes in the New Tax Scheme

(i) Change in Rebate

Rebate u/s 87A is revised to Rs. 7 Lakh from the existing limit of Rs. 5 Lakh (only for New scheme). So if you opt for New scheme and your income is not more than Rs. 7 Lakh, then you need not any tax on your income.

(ii) Now, you can claim Deductions TOO

Earlier, if you opt for New Tax Regime you need to forego almost all deductions and exemptions. But from FY 23-24 onwards, under New Tax Regime also you can claim certain deductions which is as follows:

  1. Standard deduction of Rs. 50,000
  2. Family Pension deduction of Rs. 15,000

(iii) Changes in Slab rates

Slab rates applicable up to FY 22-23

Total IncomeRate
Upto Rs. 2.50 LakhNIL
Rs. 2.50 Lakh – Rs. 5 Lakh5%
Rs. 5 Lakh – Rs. 7.50 Lakh10%
Rs. 7.50 Lakh – Rs. 10 Lakh15%
Rs. 10 Lakh – Rs. 12.5 Lakh20%
Rs. 12.50 Lakh – Rs. 15 Lakh25%
More than Rs. 15 Lakh30%

Revised slab rates applicable from FY 23-24 (as per the proposed scheme in Budget 2023):

Total IncomeRate
Upto Rs. 3 LakhNIL
Rs. 3 Lakh – Rs. 6 Lakh5%
Rs. 6 Lakh – Rs. 9 Lakh10%
Rs. 9 Lakh – Rs. 12 Lakh15%
Rs. 12 Lakh – Rs. 15 Lakh20%
More than Rs. 15 Lakh30%

(iv) New Scheme becomes DEFAULT

Till now, Old scheme is the DEFAULT option and New scheme was the OPTIONAL. From FY 23-24 onwards, New scheme becomes the DEFAULT option and Old scheme will be OPTIONAL.

(v) Surcharge capped at 25%

For the tax payers who opts for New Tax regime, maximum surcharge would be 25% instead of existing 30%. So from now onwards, if your income exceeds Rs. 2 crore, surcharge rate would be 25%.

3. Changes in limits for Presumptive Taxation

Under Presumptive taxation, specified businesses and professions can declare certain percentage of profits based on their turnover without maintaining any books.

(i) Sec 44AD – For Businesses

Existing limit of Rs. 2 Crore is revised to Rs. 3 Crore.

(ii) Sec 44ADA – For Professions

Existing limit of Rs. 50 Lakh is revised to Rs. 75 Lakh

4. TDS on Online games & Lotteries

Sec 194B deals with TDS on online games and lotteries and the threshold limit is Rs. 10,000.

Accordingly, tax should be deducted by the payer whenever winnings cross this threshold limit. But many are misusing the provision by applying the threshold for each transaction. Hence to avoid such misuse, BUDGET 2023 amended the provision in such a way that the threshold limit is applicable on AGGREGATE basis.

So after this amendment, TDS will be applicable if the threshold limit crosses either in single transaction or in multiple transactions through out the financial year.

Similar amendment is also done for Sec 194BB also, which deals with TDS on winnings from Horse races. Limits and rates are same as mentioned in Sec 194B.

5. Change in exemption limit for Leave Encashment exemption

Earlier, Leave encashment exemption limit of Rs. 3 lakh applicable for non-govt employees on their retirement is now revised to Rs. 25 lakh.

These are the some major updates in Budget 2023 and soon we will cover other updates related to Budget 2023 as well.

Thank you for your time.

Author is a Qualified CMA with an experience of more than 8 years in the industry. He is also an All India Rank holder in both Inter (AIR-26) & Final (AIR-46) examinations of ICAI. He loves to writes articles on Income Tax & GST.

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