From income tax slab to saving schemes - what has Budget 2023 done to Personal Finance? Here are the top 10 pointers

Finance Minister Nirmala Sitharaman on February 1, 2023, made a slew of announcements in the Budget 2023 ranging from growth to personal finance perspective. Amid all this, she gave a gift of tax rebate of up to Rs 7 lakh salary per annum to the common man.

The finance minister announced small saving schemes for women, as well as seniors, and also made some changes to insurance norms. Here are the top 10 pointers that explain what budget has done to the overall category of personal finance.

Income Tax slabs

The income tax rebate in the new tax regime has been increased from Rs.5 lakh to Rs. 7 lakh. The new tax regime has been made as the default income tax filing mode though the option of choosing the old regime would continue.

The basic exemption limit has been hiked to Rs.3 lakh from Rs.2.5 lakh in the new income tax regime. The number of income tax slabs in the new regime has been reduced to 5 from 6. The new tax slabs are:

Rs.0 to 3 lakh– Nil, 3 to 6 lakh-5%, 6 to 9 lakh-10%, 9 to 12 lakh-15%, 12 to 15 lakh-20% and Rs 15 lakh & above- 30%

For the salaried and pensioners with income of above Rs.15.5 lacs the standard deduction benefit now will be Rs. 52,500 in the New Income Tax Regime.

There is also good news for the super-rich in the budget as the highest surcharge levied which used to be 37% and now reduced to 25% .

Leave Encashment

The limit of tax exemption on leave encashment on the retirement of non-government salaried employees is Rs.3 lakh, which has been unchanged since 2002. This is also hiked to Rs.25 lakh in line with the increase in government salaries. Late, but good that it has happened at least now.

Savings Schemes

The maximum limit for Senior Citizens Savings Scheme (SCSS) for an individual account has been increased to Rs.30 lakh from Rs.15 lakh which is a huge boost for Senior Citizens to increase their exposure to this high interest paying Savings Scheme which currently pays 8 per cent.

The maximum limit on Post Office Monthly Income Scheme (POMIS) has been increased to Rs.9 lacs for individual accounts from Rs.4.5 lacs and for joint accounts this has been increased to Rs.15 lacs from Rs.9 lacs. A shot in the arm for another Savings Scheme which is encouraging.

A new scheme for women or girls named Mahila Samman Savings Certificate has been launched for 2 years till March 2025. The scheme will have a maturity of 2 years and pay a fixed interest of 7.5% with provision to make partial withdrawal.

No tax relief has been announced for this scheme yet without which the product is only in line with current Fixed Deposit rates making it unimpressive.

Life Insurance

Life Insurance sector has received a blow from the budget. The budget proposes to tax the maturity proceeds from traditional life insurance policies(non-ulips) with premium of more than 5 lacs in a year. This is applicable only for policies issued from 1st April’2023. Util now the maturity proceeds were completely exempt regardless of the premium amount paid.

Conversion of Gold

Conversion of digital gold to physical gold and vice versa will not be treated as capital gains. This will increase the participation in electronic gold which eliminates storage risk and risk of theft. Just as everything is getting digital now, gold also will see going more the digital way with this move.

Capital Gains deduction from sale of house

The maximum deduction that can be claimed on capital gains arising from sale of a house used to buy another property has been capped at Rs.10 Crores. Until now when a house property is sold and with the same sale value when another house was bought capital gains was exempted with no cap on the value. This would affect the super-rich.

TDS on interest of Listed Debentures

The budget has removed the exemption of TDS (Tax Deducted at Source) on interest paid by listed debentures. This has been introduced to prevent under reporting of interest from listed debentures. This is a product with small investors participation as well and would impact investors negatively.

TCS on foreign remittances

Tax Collected at Source (TCS) for foreign remittances done for overseas tour packages or to invest in stocks abroad has been increased from 5% to 20%, making investing in foreign equities a costly affair.

In recent times more avenues have opened to invest in foreign stocks and even retail investors were utilising these to take international equity exposure which has got a blow from the budget. However, individuals may be able to claim credit or refund of the TCS.

Online portal to reclaim shares and dividends

An online portal is proposed to be created to reclaim shares and dividends from Investor Protection & Education Fund (IPEF) which will substantially reduce the processing time as it is currently a manual process that consumes longer time.

Online storage of KYC documents

The budget has proposed that the government will permit fintech firms to use its Digilocker facility to store and share KYC documents online securely with various banks and regulators. This would simplify the KYC process and reduce the processing time.

Budge 2023: Overall impact on Personal Finance

While the budget at the face of it looks to leave more surplus with the middle class specifically by the increase in rebate to Rs.7 lakh in the New Tax Regime from the earlier Rs.5 lakh, doing this only with the New Regime which accommodates no deductions, in a way discourages investment habits for the long term.

Deductions are encouraged by the Old regime for long term investments like PPF, NPS, EPF, 5 Year Deposits, SCSS, Life Insurance, Purchase of house, Health Insurance, among others through Sec 80C, Sec 80D, Sec 80CCD and Sec 24 of Income Tax Act .

The much-anticipated waiver of Long Term Capital Gains Tax for equities was given a miss by the budget which if considered could have encouraged equity investing which is still languishing in the single digits in penetration.

The increase of TCS for investing in foreign stocks also puts a hurdle in the way of a habit that was just taking baby steps.

This is an authored article by V Krishna Dassan, Director - Wealth Management, Dhanavruksha Financial Services