From tax on EPF to crypto, new income tax rules kick in; here is what has changed

The new financial year 2022-23 (FY23) has brought some key changes that may affect your budget. The changes ranging from income tax, PF account to crypto tax came into effect on Friday, April 1, 2022.

The Union Budget 2022-23 proposed a 30 percent tax on virtual digital assets. From April 1, cryptocurrency gains will be taxed at 30 percent, which is the highest tax bracket equivalent to the rate of lottery winnings. From cryptocurrency to NFTs, the tax rate will apply to all virtual digital assets (VDAs).

With the new rules, cryptocurrency losses can’t be used for set-off against cryptocurrency gains. For instance, if you make a Rs 2,000 gain on Bitcoin and a Rs 1,000 loss on Ethereum, you have to pay tax on Rs 2,000 and not on the net profit of Rs 1,000.

Also, gifts received in the form of cryptocurrency or any other virtual digital assets would be liable for taxation.

A new provision allows income taxpayers to file updated returns within two years from the end of the relevant assessment year. Earlier, only a window of five months from the due date of filing returns, to revise the tax returns, was available.  However, this can’t be done to report additional loss or fall in the tax liability.

The Central Board of Direct Taxes (CBDT) will implement Income-tax (25th Amendment) Rule 2021 from 1 April 2022. Thus, a cap of tax-free contributions of up to Rs 2.5 lakh is now imposed on the Employee Provident Fund (EPF) account. Interest income on contributions made above this will be taxed.

State government employees will now get to claim a tax benefit of 14 percent on the National Pension System (NPS) under Section 80CCD(2) made by their employer up to 14 percent of their basic salary and allowance.

Dividends earned from mutual funds will be put under tax brackets. Higher burden of tax will be levied on investors in higher tax brackets, and less burden will be put on investors in lower tax brackets.

An additional tax deduction under Section 80EEA was available for first-time home buyers where the value of the property does not exceed Rs 45 lakh. Thus, homebuyers could claim a maximum deduction of Rs 3.5 lakh using Section 24(b) and Section 80EEA.

Now, the deduction under Section 80EEA will be available only for houses purchased before 31 March 2022. For houses purchased in the next financial year, the extra deduction of Rs. 1.5 lakh against the payment of interest on home loan will no longer be provided.

However, the EMI on home loan (principal and interest) still qualifies for deduction under Section 80C and section 24B. The maximum limit without 80EEA will be Rs 2 lakhs now for self-occupied property.

Currently, there is a cap of 15 percent surcharge on long term capital gain (LTCG) on the sale of listed equity or mutual funds. From April 1, 2022, this will be extended to long-term capital gain on all assets.

Tax exemption to persons who have received money for COVID treatment will be provided. Money received by family members in the event of death of a person due to COVID will also be exempt up to Rs 10 lakh, if the payment is received within 12 months from the date of death. This will be effective retrospectively from April 1, 2020.

Earlier, expenses incurred on premium payments on insurance for differently abled children could be claimed as deductions, under section 80DD of the Income Tax Act, only if the pay-out is made to a differently abled child after the death of a parent or caregiver. Now, from 1 April, a relaxation has been provided and deduction is made available even if the sum is received while the parent is still alive.