Mrs. Nirmala Sitharaman, Union Finance Minister, in her speech while presenting the Budget 2023 announced various reforms in the new tax regime. Finance Minister increased the personal income tax exemption limit under the new tax regime from 5 lakh lakh 7 lakh, reduced the number of tax slabs from six to five, and increased the tax exemption limit 3 lakhs. The highest surcharge rate was reduced from 37% to 25%, which is a standard deduction 50,000 was introduced for retired and salaried individuals, and family pension was waived 15,000 was implemented. But according to experts, these changes will make investing in ELSS less and less tax-attractive for people with taxable income. 7 lakhs, let’s know how.
Mr. Ashish Patil, Head – Product & Strategy LIC Mutual Fund Asset Management Ltd. said, “The average annual gross sales in the ELSS category was 25,000 crores in the last 5 years. The tax benefit was given either on HRA, home loan interest payment or on investments like ELSS, PPF, NPS etc. Tax deduction/exemption should be minimum in the old tax regime. 2 lakh for a person with an income of Rs. 7 lakhs, which gradually increased to R 4.25 lakhs for an income of Rs. 15.5 lakh and above to go broke with the new tax regime. If a person has income 10 lakhs and total tax deduction 3 lakh then his tax outgo will be same in old and new tax system.”
“Hence, he will choose the old tax regime over the new only if he has a minimum tax deduction of 3 lakhs as the tax will be lower. For personal income of Rs 15.5 lakh or more, the total tax deducted to break even should be Rs 4.25 lakh. Even after the deduction, the benefits received by the individual may be negligible. Hence, from next year onwards, we may see a decline in the gross sales in the ELSS category. However, there is a need to change the way investors look at ELSS as a wealth creation tool rather than just a tax saving option. Saving is an essential aspect of wealth creation. During periods of high volatility, ELSS ensure the discipline to remain in place for the investment horizon, ensuring that the investor enjoys the benefits of long-term investment due to the lock-in of 3 years,” said Mr. Ashish Patil .
Dr. Suresh Surana, Founder, RSM India, said, “The new tax regime has been proposed in Budget 2023 as the default tax regime, which will be applicable to all individual taxpayers, unless such taxpayers have converted to the old tax regime by following the prescribed procedure. regime. (Which has not been notified yet). It is pertinent to note that the new tax regime under section 115BAC for investment in Equity Linked Savings Scheme (ELSS) will allow certain deductions including deduction under section 80C and provides for restrictions on claiming the exemption.”
“Thus, ELSS investment is available only as a deduction under Section 80C of the IT Act, subject to a lock-in period of 3 years under the old tax regime. Accordingly, ELSS fund investors will have to evaluate the option of the old tax regime if they wish to claim deductions in respect of ELSS investments. Further, taxpayers whose income is within Rs. 750,000 and those opting for the new tax regime may not be inclined to invest in ELSS funds,” said Dr Suresh Surana.
CA Manish P. Hinger. Fintoo’s founder said, “Under the old tax regime, Equity-Linked Savings Scheme (ELSS) investments are eligible for a tax deduction of up to Rs. 1.5 lakh under section 80C of the Income Tax Act. This means that in ELSS funds The investments made can be used to reduce the taxable income of an individual. However, in Budget 2021, the new tax regime has done away with several exemptions and deductions including Section 80C, which covers ELSS investments. Also, several changes were announced in the recent Budget 2023 to make the new tax regime attractive. As a result, taxpayers with taxable income up to 7 lakhs will have less incentive to invest in ELSS to save their taxes Rather they will opt for the new tax regime and enjoy the tax benefits.”
“Having said that, there will be no impact of the new tax regime rules on persons in higher tax brackets as they will still be using the old tax regime due to additional tax benefits in terms of deductions and exemptions available and thus Thus they will still continue to invest in ELSS funds to claim 80C deduction. Also, it is important for ELSS fund investors to consider their overall financial position, tax liabilities and investment goals before deciding on their investment. is,” CA Manish P. Hinger added.
Dipashree Shetty, Associate Partner – Tax & Regulatory Services, BDO India said, “The following returns from ELSS funds are taxable under both the old and new tax regime: Dividends as “Income from other sources” as per applicable slab rates; and redemption income in the form of long term capital gain @ 10% tax. Contributions made to ELSS funds are eligible for a deduction of up to Rs 1,50,000 per year under section 80C of the Income Tax Act; Thus, during a year 46,800. (Assuming 30% tax and 4% Cess on a deductible amount of INR 150,000).”
“However, for the new tax regime a taxpayer cannot claim deduction under section 80C and hence, the tax benefit for ELSS contribution needs to be given up. This can be a differentiating factor as ELSS generally have a lock-in period of 3 years. Therefore, the tax benefit for contributions made during the lock-in period ceases for the taxpayer opting for the new tax regime. Deepashree Shetty further added, ELSS fund investors still want to opt for the old tax regime to save tax.
Kaustubh Belapurkar, Director-Manager Research, Morningstar India, said, “We do not see any major impact. ELSS funds continue to be excellent investment options for investors looking to take diversified equity exposure. Tax benefits should always be secondary, The primary factor that investors should consider is the suitability of the investment for their risk return objectives.”
The views and recommendations given above are those of individual analysts or broking companies and not of Mint.
catch all business News, market news, today’s fresh news events and Breaking News Update on Live Mint. download mint news app To get daily market updates.