Read about the Direct Tax amendments proposed in Budget 2023
Index:
Changes in Personal Income Tax Rates
There are no changes in the 'Old Tax Regime'. That regime remains as is. In the 'New Tax Regime' the proposed new slab rates are as follows:
Income | Rate of Tax |
Upto ₹ 3,00,000 | Nil |
From Rs. 3,00,001 to Rs. 6,00,000 | 5% |
From Rs. 6,00,001 to Rs.9,00,000 | 10% |
From Rs. 9,00,001 to Rs. 12,00,000 | 15% |
From Rs. 12,00,001 to Rs. 15,00,000 | 20% |
Above Rs. 15,00,000 | 30% |
This 'New Tax Regime' is now been made the default Tax Regime. Incase, an assessee wants to opt the 'Old Tax Regime' he shall have to choose so.
Under the 'New Tax Regime' the assessee will pay no tax if they have income upto ₹7 Lakhs. This relief is given by way of enhancing the rebate limit under section 87A.
For salaried individuals, standard deduction of ₹50,000 is now proposed to be available as a deduction in the 'New Tax Regime' also. Additionally, the highest rate of surcharge (37%) applicable to incomes over ₹ 5 crores has been removed in the 'New Tax Regime'. It remains at 37% in the 'Old Tax Regime.'
Promoting timely payments to MSMEs
The MSME Act mandates that payments to micro & small enterprises should be made within 45 days (incase of an agreement) or 15 days (not incase of an agreement). To push the implementation of this provision, any non-payment of dues of micro & small enterprises vendors beyond the date specified in MSME Act, shall be disallowed under Section 43B of the Income Tax Act. ("Act")
Emphasis is put on the fact that unlike other items mentioned in Section 43B, the dues should have been paid within the due date of the MSME Act. An assessee cannot claim the expense as allowed incase the dues are paid before filing of their Income Tax Return ("ITR").
Exemption to Agniveer/Agnipath Scheme
The Ministry of Defence had introduced the Agnipath Scheme, 2022 for enrolment of Agniveers in Indian Armed Forces. An Exempt-Exempt-Exempt status has been proposed for this Scheme. To empower this status following changes are proposed:
i. Section 10(12C): For exemption of any payment received from the Agniveer Corpus Fund by a person enrolled under the Agnipath Scheme, 2022, or the nominee of such person shall be exempted from income tax.
ii. Section 80CCH: For deduction from income, contributions made to Agniveer Corpus Fund.
iii. Section 17: For contribution made by Central Government in the Corpus of the Agniveer Corpus Fund of the individual.
Presumptive Taxation
To ease compliance for MSMEs from audit, it is proposed to increase the turnover limit for presumptive taxation for professionals from ₹50 Lakhs to ₹75 Lakhs and for businesses from ₹2 crores to ₹3 crores. This benefit is based on condition that cash receipts of te assessee shall be less than 5% of the total receipts.
Under section 44BB (Renting machinery for mineral extraction) & 44BBB (civil construction of turnkey power project), it is proposed that set off of unabsorbed depreciation and brought forward losses shall not be allowed in the years in which assessee opts for presumptive taxation.
Reforms for Co-operatives
Government had begun to focus on the Co-operative sectors since last few years. To take ahead the reform journey they have come with the following proposals in Budget 2023:
i. To conclude the litigation matter of sugar mill co-operatives, the AO shall allow the expense of sugarcane purchase upto the Statutory Minimum Price, for FY 14-15 and before.
ii. Threshold limit for TDS on cash withdrawals from banks under section 194N has been increased three times i.e. upto ₹3 crores of cash withdrawals from banks by a co-operative.
iii. Limits for Section 269SS & 269T of the Act for acceptance and repayment of loans in cash is ₹20,000. This has been enhanced to ₹2,00,000 for Primary Agricultural Credit Society or Primary Co-operative Agricultural & Rural Development Bank.
iv. To match the concessional tax rate (15%) given to domestic manufacturing companies, it is proposed to provide the same to manufacturing co-operatives by inserting new section 115BAE. The co-operative should commence its manufacturing before 31.03.24. In addition to the 15% tax, a fixed surcharge of 10% is proposed on the tax amount. This takes the minimum tax rate for new manufacturing co-operatives to 16.5% + education cess.
Start-up Sector
Basic alignment and extension have been made for Start-ups, with no new tax incentives. The 2 proposals made in Budget '23 are:
i. Benefit of carry forward of losses, inspite of change in shareholding for startups, is available for 7 years from incorporation in section 79. This has been aligned with to 10 years from incorporation, as in section 80-IAC.
ii. Date of incorporation to avail tax free concession under 80-IAC for a start-up has been extended to 31.03.2024.
Winnings from Online Gaming, Horse Racing, Gambling & Betting
Government has in the Budget focused on the TDS of online gaming, gambling & betting to plug the gaps that remained after the advent of the new digital era in this sector. They have proposed that:
i. The threshold limit of ₹10,000 should be considered qua the 'overall annual earnings' & not qua 'a transaction/ game' earning. This will increase the TDS deduction & reporting compliance. The companies (specially offline horse racing, lottery & crossword) will need to maintain the PAN based data to calculate annual earnings of a participant.
ii. From July 2023 onwards, TDS on online gaming will be deducted at the year end on the 'Net Winnings' of the participant. In case of a withdrawal from a user account, TDS will be deducted on the Net Winnings comprised in such withdrawal + unrealised Net Winnings reflected in the user account. Method to calculate 'Net Winnings' shall be prescribed.
Insurance & Investments
Budget 2023 has proposed following measures for Insurance & Investment sector:
i. Conversion of physical gold to Electronic Gold Receipt and vice versa, made under SEBI Vault Manager Regulations, 2021 shall not be considered as 'transfer' for capital gains.
ii. In Budget 2021, taxation of high value ULIP policies were rationalized, whereby ULIPs with premium of more than ₹2.5 Lakhs had been made taxable. Following that initiative, it is now proposed to end the exemption for high value non-ULIP policies incase the annual aggregate premium from all policies is more than ₹5 Lakhs. The maturity of such policies shall be taxable under section 56(2)(xiii) of the Act. If the premium amount is not claimed as deduction under 80C, the same will be deducted from the maturity amount. This new regime shall be applicable for policies issued after 01.04.2023. Hence, existing policies shall continue to be tax free at the time of maturity. Incase of receipt of sum assured on the death of the person, it shall remain tax free.
iii. Benefit of deduction from capital gains on investment in new residential property under section 54 & 54F, has been proposed to be capped at ₹ 10 crores. There was no limit earlier.
iv. Transfer, redemption or maturity of 'Market Linked Debentures' is now proposed to be taxed as Short Term Capital Gains under new section 50AA of the Act. Market Linked Debentures are proposed to be defined as a security with an underlying principal debt component & where returns are linked to market returns on other securities or indices.
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