Summary of Direct/ Indirect Tax Proposals: Budget 2023-24

Summary of the direct and indirect tax proposals in the Budget 2023 (Finance Bill 2023) as presented by Smt. Nirmala Sitharaman, Union Minister of Finance and Corporate Affairs:

Summary of Direct/ Indirect Tax Proposals: Finance Bill 2023 (Budget 2023-24)

Highlights of the Direct Tax Proposals of Finance Bill 2023

The Finance Minister has made several announcements in Budget 2023 regarding personal income tax amendments, including an increase in the tax rebate limit, an increase in the tax-exempt income slab, an increase in the tax-exempt leave encashment limit, and so on. In addition, the benefit of the standard deduction has been extended to salaried and pensioner taxpayers, and the highest surcharge rate has been reduced under the new tax regime.

Budget 2023 direct tax proposals aim to maintain continuity and stability in taxation, simplify and rationalise various provisions to reduce compliance burden, promote entrepreneurial spirit, and provide tax relief to citizens. The Income Tax Department will continue to improve taxpayer services by making compliance simple and easy.

Significant direct tax proposals for the purpose of providing tax incentives to start-up businesses, medium-to-small enterprises (MSMEs), cooperative societies, and salaried taxpayers are included in the Finance Bill, 2023. The Finance Bill, 2023 includes a number of significant direct tax proposals, some of which are listed below:

Common Income Tax Return (ITR) Form

In Budget 2023, the Finance Minister proposed introducing next-generation “Common Income Tax Return (ITR) Form” for the convenience and benefit of taxpayers.

Strengthening of the Grievance Redressal Mechanism

In Budget 2023, the Finance Minister proposed to strengthen the grievance redressal mechanism for direct taxes. While presenting the Budget 2023, the Finance Minister announced that she would deploy approximately 100 Joint Commissioners to handle small appeals in direct tax matters. She also stated that the department would be more selective in accepting cases for review of returns received this year.

Increase of Tax Rebate limit to Rs. 7 lac

In Budget 2023, the Finance Minister proposed raising the limit for Tax Rebate u/s 87A from Rs. 5 lac to Rs. 7 lac in the new tax regime. Thus, under the new tax regime, individuals earning up to Rs. 7 lac are exempt from paying tax.

Income Tax Rebate u/s 87A for Individuals AY 2023-24 & AY 2024-25

Increase of Tax Exemption Limit/ Slab to Rs. 3 lac

In Budget 2023, the Finance Minister proposed raising the tax exemption limit (slab) in the new tax regime to Rs. 3 lac. The new regime’s personal income tax structure has six income slabs, which will be reduced to five with an increase in the tax exemption limit to Rs. 3 lac. This modification will provide significant relief to all taxpayers under the new regime.

New Income Tax Rates/ Slabs (New Regime): Finance Bill 2023

Total Income (Rs)Rate (per cent)
Up to 3,00,000Nil
From 3,00,001 to 6,00,0005
From 6,00,001 to 9,00,00010
From 9,00,001 to 12,00,00015
From 12,00,001 to 15,00,00020
Above 15,00,00030

Benefit of Standard Deduction to be extended to New Tax Regime

In Budget 2023, the Finance Minister proposed extending the benefit of the standard deduction of Rs. 50,000 to salaried individuals and the deduction from family pension up to Rs. 15,000 for taxpayers under the new tax regime also.

Reduction in Highest rate of Surcharge from 37% to 25%

The Finance Minister proposed in Budget 2023 to reduce the highest surcharge rate in the new tax regime from 37% to 25%, resulting in a reduction of the maximum marginal rate (personal income tax rate) from 42% to 39%.

Increased limit for leave encashment exemption

In Budget 2023, the Finance Minister proposed raising the limit for tax exemption on leave encashment on retirement for non-government salaried employees to Rs. 25 lakh.

Leave Encashment Exemption Limit Enhanced for Private Sector Employees

New Tax Regime to be made Default Tax Regime

The Finance Minister has announced that the income tax regime introduced in 2020 will be implemented as the default tax regime. However, taxpayers will have the option to continue receiving the benefits of the previous tax regime.

Enhanced Limits for Presumptive Taxation of MSMEs and Professionals

Budget 2023 proposes increased limits for micro, small, and medium-sized enterprises (MSMEs) and certain professionals to take advantage of presumptive taxation. The increased limit will apply only if the amount or total amount received in cash during the year does not exceed 5% of total gross receipts or turnover. The budget describes MSMEs as the growth engines of our economy and proposes increased limits for microenterprises and certain professionals to take advantage of presumptive taxation.

Presumptive Tax Scheme Limits Increased us/ 44AD & 44ADA

43B Deduction only after actual payments to MSMEs

To assist MSMEs in receiving payments on time, Budget 2023 proposes to allow 43B deduction for expenditure incurred on payments made to MSMEs only when the payment is made, in order to assist such enterprises in receiving payments on time.

Deduction u/s 43B only when MSMEs are paid on time

Relief to Cooperative Sector

The Finance Minister made numerous proposals for the cooperative sector in Budget 2023, including the following:

i) New co-operatives that begin manufacturing activities before March 31, 2024, will be eligible for a 15% tax rate, which is currently available to new manufacturing companies.

Tax Rate of 15% for New Manufacturing Cooperative Societies

ii) Allowing sugar co-operatives to claim payments made to sugarcane farmers prior to the assessment year 2016–17 as expenditures. This is expected to provide them with nearly Rs. 10,000 crore in relief.

Relief to Sugar Cooperatives from past Tax Demands

iii) A higher limit of Rs. 2 lakh per member for cash deposits to and cash loans from primary agricultural cooperative societies (PACS) and primary cooperative agriculture and rural development banks (PCARDBs).

Higher Limit of Rs. 2 Lac u/s 269SS or 269T for Cooperatives

iv) Co-operative societies will be given a higher limit of Rs. 3 crore for TDS on cash withdrawals.

Higher Cash Withdrawal Limit of 3 Crore u/s 194N for Cooperatives

Support for Start-ups

In Budget 2023, the Finance Minister made a number of proposals for “startups,” including the following:

i) The date of incorporation for income tax benefits to start-ups will be extended from March 31, 2023, to March 31, 2024.

Start-ups Incorporation Timeline Extension for 80-IAC Exemption

ii) Extend the benefit of carrying forward losses on shareholding changes in start-ups from seven to ten years after incorporation.

Relief to Start-ups in Carry forward/ Set-off of Losses

Capping of Deduction u/s 54 and 54F at Rs 10 crore

In Budget 2023, the Finance Minister proposed capping the deduction from capital gains on residential house investments under Sections 54 and 54F at Rs. 10 crore in order to better target tax concessions and exemptions.

No exemption for Insurance Policies with Aggregate Premium above Rs. 5 lac

The Finance Minister proposed in Budget 2023 to limit the income tax exemption from proceeds of very high-value insurance policies where the aggregate premium for life insurance policies (other than ULIP) issued on or after April 1, 2023, is more than Rs. 5 lakh. Thus, only income from policies with aggregate premiums of up to Rs. 5 lakh will be exempt.

New I-T Rule 11UACA: Taxable Receipts from Life Insurance Policies

Exemption for Income of Authorities, Boards and Commissions

The Finance Minister proposes in Budget 2023 to exempt the income of Authorities, Boards, and Commissions established by Union or State statutes for the purpose of housing, development of cities, towns, and villages, and regulating, or regulating and developing, an activity or matter.

Tax Exemption to Development Authorities u/s 10(46A)

No minimum threshold of Rs. 10,000 for TDS

Finance Mister has proposed in Budget 2023 to remove the minimum threshold of Rs. 10,000/- for TDS.

Taxability of Online Gaming

Finance Mister has proposed to clarify the taxability relating to online gaming, i.e. to clarify about TDS and taxability on net winnings at the time of withdrawal or at the end of the financial year.

Tax Exemption for Agniveers (Agnipath Scheme 2022)

The Finance Minister has proposed that the “Agniveer Fund” be granted “EEE” status. The Agniveer Corpus Fund payment received by Agniveers enrolled in the Agnipath Scheme, 2022 has also been proposed to be exempt from income tax. Furthermore, it is proposed to allow Agniveer members to claim a deduction from their total income for any contribution made to their Seva Nidhi account by either the taxpayers or the Central Government.

Tax Exemption for Agniveers (Agnipath Scheme)

TDS Rate reduced to 20% for EPF withdrawal in Non-PAN cases

The Finance Minister has proposed lowering the TDS rate on the taxable portion of EPF withdrawals in non-PAN cases from 30% to 20%.

Other Direct Tax Proposals (Finance Bill 2023):

i) Changing gold into electronic gold receipts or electronic gold receipts into gold is not considered a capital gain;

Conversion of Gold to EGR and vice versa not ‘Transfer’

ii) Taxation of income from market-linked debentures;

iii) The period of tax benefits for funds relocating to GIFT City in the IFSC has been extended until March 31, 2025.

Amendments for Tax Incentives to IFSC

iv) Certain acts of omission committed by liquidators under Section 276A of the Income Tax Act will be decriminalised beginning April 1, 2023.

v) Losses on strategic disinvestment, including IDBI Bank, will be carried forward.

Carry forward of loss in strategic disinvestment cases

vi) Removal of requirement for using companies pre-approved by the Board for conducting feasibility studies or preparing project reports in order to claim a deduction for amortisation of preliminary expenditure.

Board Approval condition removed for Preliminary Expenditure

vii) Exemption for News Agencies withdrawn from AY 2024-25.

Exemption u/s 10(22B) for News Agencies withdrawn

Highlights of the Indirect Taxes Proposals of Finance Bill 2023

Union Finance and Corporate Affairs Minister Smt Nirmala Sitharaman announced indirect tax proposals in Budget 2023, emphasising tax structure simplification with fewer tax rates to help reduce compliance burden and improve tax administration:

i) The number of basic customs duty rates on goods has been reduced from 21 to 13, other than textiles and agriculture.

ii) The basic customs duties, cesses, and surcharges on items like toys, bicycles, automobiles, and naphtha have been slightly modified.

iii) To avoid tax cascading on blended compressed natural gas, excise duty on GST-paid compressed biogas contained in it has been waived.

iv) The customs duty exemption on the import of specified capital goods and machinery required for the manufacture of lithium-ion cells used in the batteries of electrically powered vehicles (EVs) has been extended until March 31, 2024.

v) Vehicles, specified automobile parts and components, sub-systems, and tyres proposed to be exempt from customs duty when imported for testing and/or certification by notified testing agencies, subject to conditions.

vi) In order to increase domestic value addition in the manufacture of mobile phones, the Finance Minister announced a reduction in customs duty on certain parts and inputs, such as camera lenses. Customs duties on camera lenses and their parts that are used to make camera modules for cell phones have been cut to zero, and the reduced duty on lithium-ion cells used in batteries has been extended for another year.

vii) The basic customs duty on parts of open cells in TV panels has been reduced to 2.5 percent.

viii) The budget also proposes changes to the basic customs duty in order to correct the inversion of duty structure and encourage the production of electrical kitchen chimneys. The basic customs duty on electric kitchen chimneys has been raised from 7.5 percent to 15 percent.

The basic customs duty on heat coils used to make electric kitchen chimneys has gone down from 20% to 15%.

x) Denatured ethyl alcohol used in the chemical industry is set to be duty-free.

xi) The basic customs duty on acid grade fluorspar (containing more than 97% calcium fluoride by weight) has been reduced from 5% to 2.5%.

xii) The basic customs duty on crude glycerin used to make epicholorhydrin would go from 7.5% to 2.5%, according to a proposal.

xiii) Duty reduction on key inputs for domestic shrimp feed manufacturing

xiv) The basic customs duty on seeds that are used to make diamonds in a lab has been cut.

xv) Import duties on silver jewellery, bars, and articles have been raised to match those on gold and platinum.

xvi) The basic customs duty exemption on raw materials used in the production of CRGO steel, ferrous scrap, and nickel cathode was maintained.

xvii) The 2.5 percent BCD on copper scrap is maintained.

xviii) The basic customs duty rate on compounded rubber was raised to 25% from 10% or Rs. 30 per kg, whichever is lower.

xix) The NCCD (National Calamity Contingent Duty) on some cigarettes was raised by about 16%.

Customs Legislative Amendments

a) The Customs Act of 1962 should be amended to specify a time limit of nine months from the date of filing the application for the Settlement Commission to issue a final order.

b) Amending the Customs Tariff Act to clarify the intent and scope of provisions relating to anti-dumping duty (ADD), countervailing duty (CVD), and safeguard measures.

CGST Act to be amended

The budget for 2023 proposes amending the CGST Act in order to:

a) Increase the minimum tax amount limit for launching a GST prosecution from one crore to two crore, except for the offence of issuing invoices without supplying goods and services or both;

b) reduce the compounding amount from 50 to 150 percent of the tax amount to 25 to 100 percent of the tax amount;

c) decriminalise certain CGST offences or clauses, such as obstructing and preventing any officer from performing his duties, deliberately tampering with evidence, or failing to supply information.

d) limit the amount of time you have to file returns and statements to three years from the date they were due; and

e) Let unregistered vendors and composition taxpayers sell goods within the same state through E-Commerce Operators (ECOs).

Related Posts:

Finance Bill & Act, 2023: Union Budget India 2023-24

GST Related Amendments in Finance Act, 2023

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