The Lok Sabha passed the new Finance Bill on February 24th, which brought in several changes to tax rules on the table. Whether you will start investing in FY24 or are a seasoned investor, knowing about the revised tax norms will always give you a leg up.
This article will present a snippet of all the changes made in the Finance Bill 2023 passed by Lok Sabha and how it will influence investing in FY24.
Impact of New Tax Regime on Investing in FY24
The basic tax exemption limit has been bumped up from Rs. 2.5 Lacs to Rs. 3 Lacs under the new tax regime. The new tax regime is now your default option beginning April 1, 2023; however, you can continue to use the old tax regime if you prefer.
Section 87 A of the new tax regime, which now allows a standard deduction of Rs. 50,000/- to salaried and pensioner taxpayers with income up to Rs. 7 lacs, will significantly impact future investing in FY24. Previously, the benefit was only available to individuals with an annual income of up to Rs. 5,00,000/-.
Other changes for your investments in FY24 are as follows:
- Under the new tax scheme, the highest surcharge rate has been reduced from 37% to 25%.
- Family pensioners are also eligible for a standard deduction of Rs. 15,000/- The number of income tax slabs has been reduced from six to five.
- The new tax regime has lower tax rates than the old one, which means giving up about 70 commonly used tax deductions and exemptions. It may impact your investment in FY24, primarily if you invest in tax-saving schemes under Section 80 C of the IT Act., NPS, or claim an exemption on housing loan interest.
Decide what changes are needed for your investments in FY24 to gain a higher tax benefit using the table below comparing the old and new tax regimes.
|Tax Slab||Tax Rates for FY 23-24 under Old Tax Regime (For individuals, HUF, and NRIs)||Tax Rates for FY 23-24 under New Tax Regime|
|Below 60 years||Between 60-80 years||Above 80 years||All Taxpayers|
|Up to Rs. 2.50 Lacs||NIL||NIL||NIL||NIL|
|Rs. 2.5 Lacs – Rs. 3 Lacs||5%||NIL||NIL||NIL|
|Rs. 3 lacs- Rs. 5 Lacs||5%||5% (tax rebate U/S 87 A is available)||NIL||5%|
|Rs. 5 Lacs- Rs. 6 Lacs||20%||20%||20%||5%|
|Rs. 6 Lacs – Rs. 7.50 Lacs||20%||20%||20%||10%|
|Rs. 7.50 Lacs – Rs. 9 Lacs||20%||20%||20%||10%|
|Rs. 9 Lacs – Rs. 10 Lacs||20%||20%||20%||15%|
|Rs. 10 Lacs- Rs. 12 Lacs||30%||30%||30%||15%|
|Rs. 12 Lacs – Rs. 15 Lacs||30%||30%||30%||20%|
|Above 15 Lacs||30%||30%||30%||30%|
Impact of Expanding the Scope of Sec 50 AA to Cover MLDs and Specified Mutual Funds on Investing in FY24
The special provision of Section 50 AA is one of the amendments in the newly introduced Finance Bill, which can influence your investing in FY24. This broadening of the scope of Sec 50 AA strikes a blow to the long-term capital gains and indexation benefits that Market Linked Debentures (MLDs) and Specified Mutual Funds enjoyed previously.
A “specified mutual fund” invests no more than 35% of its total revenue in domestic equity shares. If you intend to purchase Debt Mutual Funds or MLDs in 2023-24, you should reconsider your strategies for investing in FY24.
Make timely changes to your investments in FY24, as these funds no longer benefit from preferential taxation for holding periods of more than one year. All securities’ redemption, transfer, and maturity will now accrue short-term gains tax based on your applicable tax slab, regardless of the holding period.
Impact of Increase in Small Savings Rate on Investing in FY24
For the quarter ending June 2023, the government intends to hike the interest rates in the Small Savings Scheme by 10 – 70 bps (bps or basis points- one percentage equals 100 bps). Small Savings Schemes include:
- National Savings Certificate (NSC)
- Kisan Vikas Patra (KVP)
- Sukanya Samriddhi Yojna
- Senior Citizen Savings Scheme (SCSS)
- Monthly Income Scheme (MIS)
- All Post Office Time Deposits
These changes will not impact the Public Provident Fund (PPF) interest rate, which remains at 7.1%. If you are looking for high-interest paying options for investing in FY24, these small savings schemes with attractive interest rates are a good option.
Look at the revised Small Savings Scheme interest rates before you jump on to investing in FY24.
|Small Savings Scheme||Interest Rates (%) for Apr 23 – June 23|
|National Savings Certificate (NSC)||7%||7.7%|
|Sukanya Samriddhi Yojna (SSY)||7.6%||8%|
|Senior Citizen Savings Scheme (SCSS)||8%||8.2%|
|Monthly Income Scheme (MIS)||7.1%||7.4%|
|Kisan Vikas Patra (KVP)||7.2%||7.5%|
|Post Office Time Deposits||6.6% (1 Yr.) |
6.8% (2 Yr.)
6.9% (3 Yr.)
7% (5 Yr.)
|6.8% (1 Yr.) |
6.9% (2 Yr.)
7% (3 Yr.)
7.5% (5 Yr.)
Impact of Increase in Securities Transaction Tax (or STT) on Investing in FY24
If the stock market is on your radar for investing in FY24, this article is a must-read! To begin with, let us define STT in the simplest terms. The Securities Transaction Tax (STT) is a direct tax levied on purchasing and selling securities traded on Indian stock exchanges. Different STT rates apply to diverse stock market transactions, such as equity (cash) and futures and options (F&O).
“Securities” implies investment vehicles such as Shares, Bonds, Debt, equity-oriented mutual funds, etc., Indian companies or Government issues. STT rates have been increased by 25% on the sale of Futures and Options w.e.f. 01st April 2023 –
- The sale of an Option in securities hiked from 0.05% to 0.0625%
- The sale of futures in securities hiked from 0.01% to 0.0125%
This move will impact investing in FY24 if you are a high-frequency or regular buyer and seller of Options and Futures.
Investing in FY24 in Foreign Instruments Will Become More Expensive
Foreign stock investing in FY24 has become more expensive, particularly for retail investors, due to a spike in Tax Collected at Source (TCS) from 5% to 20% on all foreign remittances except for education and medical treatment.
The foreign instruments covered by the 20% TCS under RBI’s Liberalized Remittance Scheme (LRS) are- buying or selling of overseas property, foreign stocks, cryptocurrencies, mutual funds, and Bonds abroad. These changes will impact international investing in FY24, particularly for small-ticket investors seeking portfolio diversification through overseas investing.
Multiple external headwinds, crawling growth, and rapidly increasing inflation are stressing the regulator. So, it would be best if you made suitable changes to investing in FY24 so that inflation and taxes do not consume your hard-earned corpus.
We hope you gained valuable insights into the changing economic scenarios and how they can impact investing in FY24. The upshot from this article is that you should rebuild your portfolio to be more resilient to increased taxes and market volatility. This way, you can maximize your gains and financial stability in the coming years.
Are interest accrued or paid in NSC subject to TDS application?
Section 80C of the Income Tax Act allows for a deduction of up to Rs. 1.50 lakh in NSC investments. The interest on NSCs is taxable. However, because it is a cumulative scheme, the interest is not paid to the investor but is considered reinvested in the NSC.
Because it is deemed reinvested, it qualifies for a new deduction under Sec 80C, making it tax-free. In addition, only the final year’s interest is taxed upon maturity, as it is not reinvested. So, while redesigning your plans for investing in FY24, consider NSC as one of the options too.
What surcharge applies to various income slabs under the new tax regime?
Lowering surcharge rates from 37% to 25% will impact investing in FY24 if-
You opt for the new tax regime rather than the old one.
Your income is more than Rs. 5 crores.