Direct Tax & Indirect Tax – Key Changes vide Budget 2023

Finance Minister Nirmala Sitharaman presented the first Union Budget in Amrit Kaal on Wednesday, 1st February, 2023 under the shadows of the World Economic slowdown & Global Recession scenario.

Certain direct tax & indirect tax proposals were introduced by the FM. Some of the key highlights of the Budget are as follows:

Direct Tax Proposals in Union Budget 2023:

(Personal Taxes)

• No Changes in the Old tax regime for Individuals.
• Tax Slabs for New tax regime are revised with enhancement in basic exemption limit to Rs. 3 lakhs.
• Reduced tax slabs are as under:

> Up to 3 lakhs –Nil

>  Above 3 lakhs to 6 lakhs –5%

> Above 6 lakhs to 9 lakhs –10%

> Above 9 lakhs to 12 lakhs –15%

> Above 12 lakhs to 15 lakhs –20%

>  Above 15 lakhs – 30%

• Standard deduction of Rs. 50,000 from salary and Rs. 15,000 from family pension under New tax regime.
• Rebate u/s 87A enhanced on income up to 7 lakhs from the existing limit of 5 lakhs.
• Under New Tax Regime, Maximum surcharge rate reduced from 37% to 25% in case of taxpayer having taxable income exceeding 5Cr (maximum marginal rate reducing from 42.744% to 39%).
• Reduction in Capital gain exemption under section 54 & 54F, now investment is capped at INR 10 crores where the capital gain/ net consideration is reinvested in a residential house.
• Leave encashment limit announced to increase from existing 3Lakhs to 25 lakhs.
• Income received from insurance policies, issued on or after 01 April 2023 (other than unit linked policies), having premium or aggregate of premium exceeding 5 lakhs in a year, will be taxable (except in the case of death)
• Tax Collected at Source (TCS) has been enhanced to 20% (from existing 5%) on certain foreign remittances (except education & medical treatment), without any threshold limit.
• Next-generation Common IT Return Form to be rolled out for taxpayer convenience.

(Corporate Taxes)

• No changes in corporate tax rates.
• Expenses payable to micro and small enterprises shall be allowed as deduction on actual payment basis only. Deduction for expense shall be allowed only on payment basis under Section 43B.
• Consideration received from non-resident investors is now covered in the ambit of section 56(2)(viib). Consideration received more than the fair market value of shares, upon issuance of shares to a non-resident is proposed to be treated as income from other sources in the hands of the Indian company.
• Threshold for opting for a presumptive taxation scheme u/s 44AD has been increased from INR 2 crore to INR 3 crore for small business and INR 50 lakhs to INR 75 lakhs for small professional’s u/s 44ADA to ease the compliance burden for small and medium enterprises opting for the presumptive taxation scheme.
• Sunset date of incorporation of new eligible start-ups for claiming tax holidays is proposed to be extended by one year, i.e. from 1 April 2023 to 1 April 2024. This shall help promote the start-up ecosystem of our country.
• Credit of taxes withheld in subsequent years against the income already offered to tax in the preceding year can be claimed by filing of a rectification application.
• Time limit for the scrutiny proceedings has been increased from 9 months from the end of assessment year to 12 months from the end of assessment year to effectively carry out the tax scrutiny proceedings.

(Trusts)

• Filing of Form 9A and Form 10 by trusts or institutions to claim accumulation of income is now required to be made at least two months prior to the due date of filing of return of income.
• The provisions of accreted tax under Section 115TD extended to trusts or institutions if they fail to make an application for re-registration.
• The trusts and institutions that have commenced the activities shall make applications directly for the regular registration instead of provisional registration.
• Exemption granted for earlier years through second, third and fourth proviso to sub-section (2) of section 12A stands omitted.
• The donations made by a trust or institution to another trust or institution shall be treated as application only to the extent of 85% of such donations.

Indirect Tax Proposals:

(GST)

• Composition dealers can now supply goods inter-state and through e-commerce operators also.
• Input tax credit (ITC) will not be available for goods or services used in activities relating to Corporate Social Responsibility (CSR).
• Filing of returns and statements will not be allowed after three years from the relevant due dates.
• Minimum threshold for launching prosecution will be increased from INR1 crore to INR2 crore except in case of issuance of invoice without supply.
• Place of supply of services of transportation of goods outside India will be:

> In case of registered recipient —location of recipient

> In case of unregistered recipient —location at which goods are handed over for transportation.

• The amount of refund on account of zero-rated supplies granted on provisional basis shall now be 90% of the entire amount of refund claimed.
• Following transactions are to be treated as outside the purview of GST also for the period 1 July 2017 till 31 January 2019, previously it was taken outside the purview from 1 February 2019:

Supply of goods from a place in non-taxable territory to another place in non-taxable territory without such goods entering into India

Supply of warehoused goods before their clearance for home consumption

High sea sales

(Customs)

• As a part of custom duty rate rationalization, Basic Customs Duty (BCD), Social Welfare Surcharge (SWS) and Agriculture Infrastructure and Development Cess (AIDC) on several goods will be reduced.
• Concession in basic customs duty for lithium-ion battery, Camera Lens, TV panels, shrimp feed.
• BCD rate on compounded rubber is being increased, & NCCD on specified cigarettes to be revised upwards.

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Disclaimer: – The information compiled is my personal observation and Interpretation of the Finance Bill & Memorandum. The Author and publisher disclaim any liability in connection with use of this information.