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UNION BUDGET 2023 ANALYSIS by C P AGRAWAL & ASSOCIATES
CHARTERED ACCOUNTANTS
DIRECT TAXES
The following are the key announcements in Budget 2023:
TAX REBATE: -
· Section 87A rebate increased from the current Rs. 5 Lakhs to Rs. 7 Lakhs in the New tax regime. Currently, those with income up to 5 lakhs do not pay any income tax in both old and new tax regimes. The budget proposes to increase the rebate limit to 7 lakhs in the new tax regime. Thus, persons in the new tax regime, with income up to 7 lakhs will not have to pay any tax.
v SURCHARGE RATE :- · Highest surcharge rate is reduced from 37% to 25% in the new tax regime.
v SLAB RATE OF INDIVIDUALS/HUF :-
· The number of slabs in new tax regime is revised, maximum exemption limit is Rs. 3 lakhs.
This proposal relates to middle-class individuals. Earlier in the year 2020, the new personal income tax regime with six income slabs starting from 2.5 lakh was introduced. Now in Budget 2023, it is proposed to change the tax structure in this regime by reducing the number of slabs to five and increasing the tax exemption limit to 3 lakhs.
The new tax rates are (NEW TAX REGIME):-
v NEW TAX REGIME WILL BE DEFAULT NOW From April 1, 2023, the new income tax regime will be your default tax regime. However old regime will continue on option of assesse.
v BENEFIT OF STANDARD DEDUCTION IN NEW REGIME ALSO: -
Standard deduction of 50,000 to salaried individual, and deduction from family pension up to 15,000 is currently allowed only under the old regime without any threshold on salary Income. It is proposed to allow these two deductions under the new regime also.
v STATUTORY LIMIT OF LEAVE ENCASHMENT: -
· The limit of 3 lakhs for tax exemption on leave encashment on retirement of non-government salaried employees was last fixed in the year 2002, when the highest basic pay in the government was 30,000/- pm. In line with the increase in government salaries, the Budget proposed to increase this limit to 25 lakhs.
Note: - For state and central government employees leave encashment is full exempt already. Encashment of earned leave up to 10 months of average salary, at the time of retirement in case of an employee (other than an employee of the Central Government or State Government), is exempt under sub-clause (ii) of clause (10AA) of section 10 of the Income-tax Act (“the Act”) to the extent notified. The maximum amount which can be exempted is 3 lakhs at present. The Budget is proposed to issue notification to extend this limit to 25 lakhs.
v TDS U/S 194 N :-
· Increasing threshold limit for Co-operatives to withdraw cash without TDS. The Budget proposed to enable co-operatives to withdraw cash up to 3 crores in a year without being subjected to TDS on such withdrawal.
v TCS ON FOREIGN REMITTANCE U/S 206C: -
· The rate of TCS for foreign remittances for education and for medical treatment is proposed to continue to be 5 per cent for remittances in excess of ` 7 lakh.
· Similarly, the rate of TCS on foreign remittances for the purpose of education through loan from financial institutions is proposed to continue to be 0.5 percent in excess of `7 lakh.
· However, for foreign remittances for other purposes under LRS and purchase of overseas tour program, it is proposed to increase the rates of TCS from 5 per cent to 20 per cent.
v LIMIT FOR PRESUMPTIVE TAX SCHEME HIKED: -
· Increased threshold limits for presumptive taxation schemes.
In order to ease compliance and to promote non-cash transactions, it is proposed to increase the threshold limits for presumptive scheme of taxation for eligible businesses from 2 crore to 3 crore and for specified professions from 50 lakh to 75 lakh. The increased limit will apply only in case the amount or aggregate of the amounts received during the year, in cash, does not exceed five per cent of the total gross receipts/turnover.
v TDS RATE ON EPF WITHDRAWALS REDUCED TO 20% FOR NON PAN CASES: -
· Tax deducted on EPF withdrawals has been reduced to 20% from 30% in non-PAN cases in Budget 2023.
According to the current income tax laws, TDS is deducted on the EPF withdrawal if the money is redeemed within 5 years of the opening of the EPF account. If the PAN is available with the EPFO, then TDS is deducted at the rate of 10% if the withdrawal amount exceeds Rs 50,000. However, if PAN is not available, then TDS is deducted at 30%. (This rate is reduced i.e., 20%)
Note that if the EPF withdrawal is made after 5 years, then no TDS is deducted.
v CARRY FORWARD LOSSES OF START-UP COMPANY EXTENDED TO 10 YEARS: -
Entrepreneurship is vital for a country’s economic development. We have taken a number of measures for start-ups and they have borne results. India is now the third largest ecosystem for start-ups globally, and ranks second in innovation quality among middle-income countries. The Budget is proposing to extend the date of incorporation for income tax benefits to start-ups from 31.03.23 to 31.3.24. The Budget is further proposing to provide the benefit of carry forward of losses on change of shareholding of start-ups from seven years of incorporation to ten years.
INVESTMENTS
v NEW SAVINGS SCHEME FOR WOMEN
In the Budget it is announced a one-time small savings scheme ‘Mahila Samman Saving Certificate’. In this scheme, the deposits can be made in the name of a woman or a girl child. You can deposit up to Rs 2 lakh for a period of two years at a fixed rate of 7.5 percent. There are no tax benefits, but partial withdrawal is allowed in this scheme.
v INVESTMENT LIMIT OF SENIOR CITIZEN SAVINGS SCHEME INCREASED
The maximum investment limit for the Senior Citizen Savings Scheme (SCSS) has been increased from Rs 15 lakh to Rs 30 lakh in Budget 2023.
v POST OFFICE MONTHLY INCOME SCHEME (POMIS) LIMIT ENHANCED TO RS 9 LAKH FOR INDIVIDUALS
The Post Office Monthly Income Scheme (POMIS)'s limit has been enhanced to Rs 9 lakh from Rs 4.5 lakh for single account holders, according to Budget 2023. In case of joint holding, the limit has been increased to Rs 15 lakh from Rs 9 lakh.
v LIFE INSURANCE PROCEEDS TAXABLE FOR PREMIUM OVER RS 5 LAKH OTHER THAN (ULIPs)
For life insurance policies issued on or after April 1, 2023, the tax exemption on maturity benefits under Section 10(10D) will only be applicable if the annual premium paid by an individual is up to Rs 5 lakh, i.e. (more than 5 lakhs will now be taxable). This will not affect the tax exemption provided to the amount received on the death of person insured. It will also not affect insurance policies issued till 31st March, 2023. Currently, the maturity proceeds for all types of life insurance policies, which include death benefits, maturity benefits and accrued bonus, are tax-free if the premium does not exceed 10% of the sum assured for policies issued after 1 April 2012.
v Investment in residential property for capital gains deduction capped at Rs 10 crore
As per Explanatory memorandum for Budget 2023, the provisions of sub-section (2) of section 54 and sub-section (4) of section 54F that deals with the deposit in the Capital Gains Account Scheme have also been amended. It is proposed to insert a proviso to provide that the provisions of subsection (2) of section 54 and sub-section (4) of section 54F, for the purpose of deposit in the Capital Gains Account Scheme, shall apply only to capital gains or net consideration, as the case may be, up to rupees 10 Crores. These amendments will take effect from the 1st day of April, 2024 and shall accordingly, apply in relation to the assessment year 2024-25 and subsequent assessment. Fo For section 54 of the Act, the deduction is available on the long-term capital gain arising from transfer of a residential house if the capital gain is reinvested in a residential house. In section 54F of the Act, the deduction is available on the long term capital gain arising from transfer of any long term capital asset except a residential house, if the net consideration is reinvested in a residential house.
For better targeting of tax concessions and exemptions, the budget proposes to cap deduction from capital gains on investment in residential house under sections 54 and 54F to Rs. 10 crore. MSME v PROMOTING TIMELY PAYMENTS TO MICRO AND SMALL ENTERPRISES In order to promote timely payments to micro and small enterprises, it is proposed to include payments made to such enterprises within the ambit of section 43B of the Act. Thus, deduction for such payments would be allowed only when actually paid. It will be allowed on accrual basis only if the payment is within the time mandated under the Micro, Small and Medium Enterprises Development Act.
· VIVAD SE VISHWAS – RELIEF FOR MSME
In cases of failure by MSMEs to execute contracts during the Covid period, 95 per cent of the forfeited amount relating to bid or performance security, will be returned to them by government and government undertakings. This will provide relief to MSMEs.
· CREDIT GUARANTEE FOR MSME Last year, The Budget revamping of the credit guarantee scheme for MSMEs. It is announcing in Budget that the revamped scheme will take effect from 1st April 2023 through infusion of 9,000 crores in the corpus. This will enable additional collateral-free guaranteed credit of 2 lakh crore. Further, the cost of the credit will be reduced by about 1 per cent.
· MSME AND PROFESSIONALS MSMEs are growth engines of our economy. Micro enterprises with turnover up to 2 crore and certain professionals with turnover of up to 50 lakhs can avail the benefit of presumptive taxation. The Budget Proposes enhanced limits of 3 crores and 75 lakhs respectively, to the tax payers whose cash receipts are no more than 5 per cent. Moreover, to support MSMEs in timely receipt of payments, it is proposing to allow deduction for expenditure incurred on payments made to them only when payment is actually made.
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