Every year after the union budget I publish a post on how it affects me. I am doing the same again now. Usually the budget does not affect my financial planning much except for that one time when the finance minister introduced the tax on long term capital gains on equities. This budget was pretty mild and simple. No nasty surprises (at least for me). The only announcements that needed any financial planing were –
- Up to 7 lakh is tax free in the new tax regime
- Spending abroad attracts 20% TCS
- Senior citizens can invest 30 lakh in SCSS.
Not many things to discuss, so lets get down to business
Up to 7 lakh is tax free in the new tax regime
This is great news for me! You see, since I am not working any more, I cannot take many of the deductions that the old tax regime allowed, like HRA, or home loan benefits, etc. So the new tax regime has become more attractive to me now. Let me explain. Suppose I have a total annual income of Rs. 6.6 lakhs. Ok wait, why would I have any income if I am retired?
Well, remember, that I have to keep selling my investments (mutual funds) every month so I can get money to handle my expenses. Last year we spent Rs. 14 lakhs! Where did that money come? From selling my investments in mutual funds. Every time I sell MFs, I have capital gains which is income. Not just that but I have income from bank interest (which is quite small, but still an income).
So going back to my example – lets say I have Rs. 6.6 lakhs of income. Using the old tax regime, I can claim Rs. 1.5 lakhs worth of section 80(c) benefits since I invest in ELSS. Then I can take section 80TTA benefit to reduce Rs. 10K of bank interest assuming I had more than Rs. 10K worth of interest. After taking those deductions, I am left with Rs. 5 lakhs income. Since Rs. 2.5 lakhs is tax free, I am left with paying tax for the rest of Rs. 2.5 lakhs. The tax comes out to be Rs. 12.5K. Luckily if your income is Rs. 5L or less, then you can take Rs. 12.5K rebate under section 87A which brings down the tax to zero.
In the case of new tax regime, up to Rs. 7 is tax free. Let me explain. While no deductions are allowed in the new tax regime, income up to Rs. 3L is tax free. Then the rest of Rs. 4L attracts a tax of Rs. 25K. Thankfully the rebate under section 87A in the new tax regime is Rs. 25K for income up to Rs. 7 lakhs. That rebate cancels out the tax fully. As you can see I can now stop investing in ELSS funds and yet take the full tax benefit under the new tax regime.
The tax slabs in the new regime have been tweaked a bit to reduce the overall tax. it benefits the salaried and others alike. For me, it means I can do slightly more tax harvesting than before. Other than that there is nothing that I will change in my financial planning.
Spending abroad attracts 20% TCS
This one is a bit unfortunate but that is how it is. Although I have not traveled abroad since the 5% TCS came into affect in Budget 2020, I was always cautious about it. Basically according to the old tax law, if you spend more than Rs. 7L in foreign travel, a 5% tax is collected at source (TCS). You can claim the refund if your income is not taxable. If you spend less than Rs. 7L, no tax is deducted.
From budget 2023, the rule has changed. A tax of 20% will be collected instead of the 5% earlier. Moreover the tax will be collected every time. There is no Rs. 7L limit. Which means that you have to claim the refund at the end of financial year. The money is not lost to taxes, but you have to wait almost a year from the time the tax is deducted to the time until you can claim it. For example, if I went on a vacation to the US in October 2023 and spend Rs. 5L on the trip, then a TCS of Rs. 1L will be collected in taxes. So I am spending Rs. 6L for a Rs. 5L vacation. Then in June 2024 when I file taxes, I can claim refund if I don’t have taxable income. The refund may get deposited in October 2024 which is a year after I was actually taxed. What a waste.
This is the reason I left some of my US stocks, which I received as part of my compensation while I was working, with the US stock broker. So now when I want to travel to US, I won’t be selling any Indian mutual funds because if I sell here and spend in the US, I will attract a 20% TCS. Instead, I will sell my US stock and get it wire transferred to my US bank account and pay from there. By the way, this is all legit :).
I can do this is because I have been reporting my US stocks and bank account balance via schedule FA in all my taxes. So the government already knows that I have US stocks and bank account. Of course, when I sell the US stock I still have to pay taxes in India as I normally would. And for those of you wondering, I did mention about my foreign stock and that idea that I will be using that money for US vacation in my blog a long time ago. The US stock and the vacation is not part of my retirement planning. I took out the foreign money out of my retirement plan because the idea was that if I go on a vacation to US I will use that money. If that US stock value drops to zero, I won’t be able to have a US vacation, but then again, that was never the plan according to my retirement planning. Get it?
If you are interested about my US stocks, read the bonus sections of Year In Review - 2018 Returns and Year In Review - 2019 Returns posts. And if you want to understand why I stopped reporting them in the year in review series, see the first paragraphs of Year In Review – 2020 Net Worth.
Senior citizens can invest 30 lakh in SCSS
The final announcement in the budget that was of any interest to me is this one about increasing the investment limit for Senior Citizen Saving Scheme (SCSS). While it does not affect me directly, it will simplify my parent’s investments. You see, thus far my parents have maxed out their Rs. 15L investments each in SCSS. In addition they have some amount each in debt mutual funds that I manage for them. So every month in addition to the SCSS interest that they get, I would sell a bit of their mutual funds to cover their expenses.
With the budget announcements, my parents can invest more than Rs. 15L. So I am planning to sell all their mutual funds and ask them to invest in SCSS directly. That will save me some work managing their portfolios and also reduce the burden on tax filing since now they can just use the simpler ITR1 instead of ITR2. Two birds with one stone :).
So that was all about the 2023 budget and how it affects me.