This year’s Union Budget has much in store as compared to last year. Given by the address of the Honourable FM Mrs. Nirmala Sitharaman on the floor of the Parliament, one might be mistaken to note that there is very little in the budget. In fact there are 114+ clauses in the Finance Bill on direct taxes alone. Some of them are new provisions while some are introduced to correct the mistakes committed in the past budgets. In my view there is more in this budget both for the Tax Practitioners /chartered accountants and the Tax payers.
NEW REGIME TO BE THE DEFAULT REGIME
Now the old regime vs the new regime is the talk of the nation. In every TV debate, in every newspaper or in every youtube channel discussion is flooded on this issue. As we all know the new regime of taxation i.e Section 115BAC was introduced a couple of years back wherein the tax rates were lower but no deductions and exemptions were allowed. Whereas in the old regime tax rates were higher but the benefit of various exemptions and deductions were available. On a comparison of the two schemes, most assessees found old regime to be more beneficial as a result only about 2% of the assesses opted for the new regime. This defeated the very purpose of introducing the new regime. Now it is proposed to make the new regime more attractive so that more and more assesses can opt for the scheme.
So lets have a glance at the proposals :
1. There is no change in the tax rates of Old scheme-neither in the rates nor in the slabs nor in the exemptions or deductions which signifies that the Govt’s clear thrust is on the new scheme.
| Financial
Year |
Rate | Individual (other than senior citizens)
HUF,AOP,BOI,AJP (Upto age of 60 Years) |
Senior Citizen (Resident)
(Who is 60 years or more at any time during the previous year) |
Super Senior Citizen(Resident)
(Who is 80 Years or more at any time during the previous year)
|
| 2023-2024 | Nil | Upto 2,50,000 | Upto 3,00,000 | Upto 5,00,000 |
| 5% | 2,50,001 to 5,00,000 | 3,00,001 to 5,00,000 | ||
| 20% | 5,00,001 to 10,00,000 | 5,00,001 to 10,00,000 | 5,00,001 to 10,00,000 | |
| 30% | Above 10,00,000 | Above 10,00,000 | Above 10,00,000 |
2. Now the New scheme will be the default scheme but the old scheme will also continue side by side.
3. Assessees having income from business or profession can switch over to the old scheme by exercising an option. Such option has to be exercised before filing of the return under section 139(1). However, if they want to switch back to the new scheme, this will be allowed only once.
4. Assessees having income other than business or profession can switch over from new regime to the old regime or vice versa every year while exercising such option along with the filing of the IT return under section 139(1).
5. Now the important point to note here is that earlier default scheme was old scheme and option was to be exercised for switching out from or switching in to old scheme but now reverse will be the case.
6. Lets have a comparative seen of the current new regime as well as proposed new regime:
| Total Income (Rs) | Till FY 2022-2023 | Total Income (Rs) | From FY 2023-2024 |
| Up to 2,50,000 | NIL | Up to 3,00,000 | NIL |
| From 2,50,000 to 5,00,000 | 5% | From 3,00,001 to 6,00,000 | 5% |
| From 5,00,001 to 7,50,000 | 10% | From 6,00,001 to 9,00,000 | 10% |
| From 7,50,001 to 10,00,000 | 15% | From 9,00,001 to 12,00,000 | 15% |
| From 10,00,001 to 12,50,000 | 20% | From 12,00,001 to 15,00,000 | 20% |
| From 12,50,001 to 15,00,000 | 25% | ||
| Above 15,00,000 | 30% | Above 15,00,000 | 30% |
Salient features of the proposed new scheme
1. It will be applicable for Individual, HUF, AOP, BOI(other than co-operative societies), earlier it was available for individual & HUF only.
2. Threshold limit to be increased to Rs. 3 lakhs from Rs. 2.5 lakhs.
3. Taxation Slabs rates to be decreased from 6 to 5 and various slabs have been rearranged.
4. Rebate under section 87A to be increased from Rs. 5 lakhs to Rs. 7 Lakhs so as to provide that those having total income upto Rs. 7 lakhs will not have to pay any tax.
5. In new tax regime, the highest rate of surcharge of 37% on income above Rs.5 crores to be reduced to 25%.This effectively brings the highest tax rate to below 40%.
WHICH SCHEME IS BENEFICIAL TO THE ASSESSEE
It is difficult to give a straight answer. It will depend on case to case and on eligible investments one may have. It may also depend on future planning of the assessee and one must exercise caution in choosing the option particularly in the case of assesses having business/professional income as the switchover options are restricted. However, I have tried to analyse the impact on the tax benefits in new regime vis a vis old regime with the assumption that the assesse has investments of Rs. 1.5 Lakh U/S 80C, Rs. 25000/- under Section 80D and Rs. 2,00,000/- of interest on eligible HBL u/s 24.
| Total Income | OLD REGIME | NEW REGIME | DIFFERENCE |
| 10 LAKHS | 37,500 | 60000 | (22500) |
| 15 LAKHS | 137500 | 150000 | (12500) |
| 20 LAKHS | 300000 | 300000 | NIL |
| 25LAKHS | 450000 | 450000 | NIL |
| 30 LAKHS | 600000 | 600000 | NIL |
| 50 LAKHS | 1200000 | 1200000 | NIL |
Thus in terms of benefit the old regime can match the new regime only if there are sufficient investments as stated above. Even in such case both the schemes give similar tax after income level of Rs. 15 Lakhs. Otherwise the new regime seems to be more beneficial.
DEDUCTIONS AVAILABLE UNDER NEW REGIME
1. Benefit of Standard Deduction extended in the new regime which is Rs. 50,000/-
2. Benefit of family pension deduction u/s 57 (Rs.15,000 or 1/3 of Pension, whichever is lower)extended.
3. New Deduction u/s 80CCH (2)for amount paid or deposited in the Agniveer Corpus Fund.
4. Earlier one more deduction was allowed under new regime, which is still continued is section
80CCD(2)
If we go by the above deductions I wonder whether we are again moving to the era of deductions and exemptions because at present there is only one deduction allowable viz. U/S 80CCD(2) but now it will be increased to four deductions whereas the Govt’s focus is on exemption/deduction free tax rates.
Whatever it may be ,the new regime is the default regime now and in a recent interview Mr. Nitin Gupta ,chairman CBDT , said that the Government expects that approx. 50% -to – 66.5% of the assesses would opt for the new regime.
OTHER RELIEFS PROPOSED
Some of the other reliefs proposed in the Union budget are as follows:
1.The limit of Rs. 3 lakh for tax exemption on leave encashment on retirement of non-government employees is proposed to be increased to Rs. 25 lakhs.
2.The limit for investment in Senior Citizen Scheme(SCSS) has been increased to Rs. 30 Lakhs from Rs. 15 Lakhs
3.The limit for investment in Post Office MIS Scheme has been increased from 4.5 lakhs to Rs. 9 lakhs in the case of single account and from Rs. 9.0 Lakhs to Rs. 15 Lakhs in the case of a joint account.
4. A new investment scheme for women and girl child has been proposed where the interest rate would be 7.5%. The tenure of this scheme will be only for two years and the maximum investment will be capped at Rs. 2 lakhs only. It will have partial withdrawl facility. The scheme called Mahila Samman Savings Certificate(MSSC) will be available upto March, 2025. In my opinion this scheme would serve little purpose.
EXTENDING SCOPE OF SECTION 43B TO COVER PAYMENTS TO MSMES
Section 43B of the Act provides for certain deductions to be allowed only on actual payment. Further, the proviso of this section allows deduction on accrual basis, if the amount is paid by due date of furnishing of the return of income u/s 139(1).
MSME is a preferred sector for the Government and rightly so because it plays an important role in the growth of the economy. There are about 63.4 Million MSME Enterprises which account for 40% of the Country’s exports, 6% of Manufacturing GDP and 25% of Service GDP. 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. Accordingly, it is proposed to insert a new clause (h) in section 43B of the Act to provide that any sum payable by the assessee to a micro or small enterprise beyond the time limit specified in section 15 of the Micro, Small and Medium Enterprises Development (MSMED) Act 2006 shall be allowed as deduction only on actual payment. However, it is also proposed that the proviso to section 43B of the Act shall not apply to such payments.
Section 15 of the MSMED Act mandates payments to micro and small enterprises within the time as per the written agreement, which cannot be more than 45 days. If there is no such written agreement, the section mandates that the payment shall be made within 15 days. Thus, the proposed amendment to section 43B of the Act will allow the payment as deduction only on payment basis. It can be allowed on accrual basis only if the payment is within the time mandated under section 15 of the MSMED Act.
If we analyse it deeply, we would find that it’s a major provision. Eligible entities should take the MSME registration, so that this benefit is available to them. Further, for tax practitioners or chartered accountants, it will be tough task for them to determine whether their clients have paid to such MSMEs as per this provision or to determine the amount of disallowance to be reported for the purpose of tax calculation and also for reporting in the audit report. It will also put liquidity pressure on the entities who are getting supplies/services from MSMEs.
CONVERSION OF GOLD TO ELECTRONIC GOLD RECEIPT AND VICE VERSA
It has been proposed that the conversion of physical form of Gold to Electronic Gold Receipt(EGR) and vice versa by SEBI registered Vault Manager is not to be treated as a transfer and to be out of the purview of capital gains.
It was provided last year that conversion of gold into EGR will not be regarded as transfer. This provision was intended to promote electronic dealing in gold. But it was incomplete as reconversion of EGR into physical gold was not covered and was treated as transfer attracting capital gains. This defeated the very purpose of the intention of the Government. So this provision is intended to correct the mistake made earlier.
Further, the cost of acquisition of the EGR for the purpose of computing capital gains shall be deemed to be the cost of gold in the hands of the person in whose name EGR is issued.
It is also proposed that for the purpose of computing the period of holding, the date of original acquisition of the physical gold shall be taken into consideration. Let us understand this by an example. Suppose, if the Gold was acquired in the year 1990, converted into EGR in the year 22-23, reconverted in physical gold in the year 23-24 and then sold it in the year 2023-24, the period of holding would be reckoned from 1990. Without this provision the period of holding was reckoned from the date the physical gold was converted into EGR. Thus the assesses may be able to take the benefit of long term capital gain and also benefit of section 54F.
INCREASING THRESHOLD LIMIT FOR PRESUMTIVE TAXATION SCHEMES
In order to ease compliance and to promote non – cash transactions it is proposed to increase the threshold limit for presumptive taxation schemes under Section 44AD and 44ADA
It is proposed to increase the threshold limit under section 44AD of the Act from Rs. 2 Crore to Rs. 3 Crore provided the amount or aggregate of the amounts received during the previous year, in cash, does not exceed five per cent of the total turnover or gross receipts.
It is also proposed to increase the threshold limit under section 44ADA of the Act from Rs. 50 Lakhs to Rs. 75 Lakhs , for professions referred to in sub-section (1) of section 44AA of the Act, where the amount or aggregate of the amounts received during the previous year, in cash, does not exceed five per cent of the total gross receipts.
It is also provided that the receipt by a cheque drawn on a bank or by a bank draft, which is not account payee, shall be deemed to be the receipt in cash.
Provision of section 44AB of the Act relating to Tax Audit shall not apply to the person, who declares profits and gains for the previous year in accordance with the provisions of sub-section (1) of section 44AD of the Act or sub-section (1) of section 44ADA of the Act, as the case may be.
It is worth mention here that the extended threshold would apply only if the cash receipts are not more than 5% of the total turnover or gross receipts as the case may be. Otherwise it will not be covered under the presumptive taxation scheme. Further , under the proposed extended limit of Section 44AD, the rate of 8% would not be relevant now and only 6% rate would be applicable.
LIMITING THE ROLL OVER BENEFIT CLAIMED UNDER SECTION 54 AND 54F
The existing provisions of section 54 and section 54F of the Income-tax, 1961 (the Act) allows deduction on the Capital gains arising from the transfer of long-term capital asset if an assessee , within a period of one year before or two years after the date on which the transfer took place purchased any residential property in India, or within a period of three years after that date constructed any residential property in India. 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.
In order to prevent this, it is proposed to impose a limit on the maximum deduction that can be claimed by the assessee under section 54 and 54F to rupees ten crore. It has been provided that if the cost of the new asset purchased is more than rupees ten crore, the cost of such asset shall be deemed to be ten crores. This will limit the deduction under the two sections to ten crore rupees.
Consequently, 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, upto rupees 10 Crores.
Let us understand the provisons by way of examples:
1.U/S 54, if the net sale consideration of a residential house ,say, is 20 crores and the cost of acquisition Rs. 5 Crores, the net gains would be Rs. 15 crores. Now if one invests Rs. 15 crores in a new residential house, as per the proposed provision , the cost of the new asset would be deemed to be Rs. 10 crores only. Out of the capital gains of Rs. 15 crores only Rs. 10 crores would be allowed to be set off thus leaving the balance of Rs. 5 crores as taxable capital gains whereas as per the existing provisions, entire capital gain of Rs. 15 crore can be set off resulting in NIL taxable capital gains.
It is also to be seen that if the new residential property is sold later, whether the cost would be taken the actual cost i.e. Rs. 20 crores or the deemed cost i.e. 10 Crores.
RATIONLAISATION OF EXEMPT INCOME UNDER LIFE INSURANCE POLICIES
Clause (10D) of Section 10 provides for exemption to any sum received under a life insurance policy, including the sum allotted by way of bonus on such policy except where the premium per annum is more than 10% of the sum assured.
Sum received from insurance policies(other than ULIP for which provision already exists) having premium or aggregate of premium above Rs. 5 Lakhs in a year shall now be taxed. Income, however, will be exempt, if received on death of the person. The income shall be taxable under the head “Income From Other Sources”. Deduction shall be allowed to premium paid, if such premium has not been claimed as deduction earlier. This provision, however, shall apply for policies issued on or after1st April, 2023 and shall not be applicable to policies issued earlier.
For example, the premium p.a. under a life insurance policy is Rs. 6 lakhs and the policy term is 10 years and sum assured is 70 lakhs. The maturity proceeds are 1 crore. The assesse had already availed Rs. 1.5 lakh each year deduction under section 80C i.e. total of Rs. 15 lakhs in 10 years. The total premium paid net of deduction already claimed will be Rs. 45 lakhs. Now after maturity the income taxable would be Rs. 55 lakhs(1 crore Rs. 45 lakhs)which will be taxed as income from other sources.
Taxing under the income from other sources would mean that this will not be treated as income from capital gains.
I wonder why such complicacies? On the one side , the taxation burden is reduced for HNIs by reducing the surcharge from 37% to 25% and on the other side taxation burden is h to be increased for such HNIs by enhancing taxation on capping relief on capital gains and taxing the high value life insurance policies. On the one side Govt wants more spending but on the other hand it restricts high spending on immovable properties and insurance policies.
PREVENTING PERMANENT DEFERRAL OF TAXES THROUGH UNDERVALUATION OF INVENTORY
Various records are prescribed under various Statutes. Assessees are required to maintain books of account for the purposes of the Income Tax Act. There are Income Computation and Disclosure Standards (ICDS) for the computation of income. ICDS-II relates to valuation of inventory. Section 148 of the Companies Act 2013 also mandates maintenance of cost records and its audit by cost accountant in some cases. In order to ensure that the inventory is valued in accordance with various provisions of law, it is proposed to amend section 142 of the Act.
Section 142 deals with enquiry before assessment. Sub-section (2A) of Section 142 provides that the Assessing Officer, at any stage of the proceeding before him, having regard to the nature and complexity of accounts, doubts about the correctness of the accounts, multiplicity of the transactions in the accounts or specialised nature of business activity of the assessee and in the interest of the revenue may direct the assesse to get his accounts audited by an accountant, and to furnish report as per Rules. Now this Sub Section (2A) of Section 142 is proposed to be amended so as to enable the Assessing Officer to get the inventory of the assesse also valued by a Cost Accountant.
PROVISIONS RELATING TO START UPS
Extension of date of incorporation for eligible start up for exemption
1. The existing provisions of the section 80-IAC of the Act provides for a deduction of an amount equal to hundred percent of the profits and gains derived from an eligible business by an eligible start-up for three consecutive assessment years out of ten years, beginning from the year of incorporation, at the option of the assessee subject to certain conditions.
To avail the exemption under section 80-IAC of the Act, eligible start-up companies have to get incorporated on or after 1st day of April, 2016 but before 1st day of April 2023.However, it is notified to amend the provisions of section 80-IAC of the Act so as to extend the period of incorporation of
eligible start-ups to before 1st day of April 2024. This amendment will take effect from the 1st day of April, 2023 and shall accordingly, apply in relation to the assessment year 2023-24 and subsequent assessment years.
2. Relief to start-ups in carrying forward and setting off of losses
Section 79 of the Act restricts carrying forward and setting off of losses in cases of companies, other than the companies in which the public is substantially interested. It prohibits setting off of carried forward losses if there is change in shareholding. The carried forward loss is set off only if at least 51% shareholding (as on the last date of the previous year) remains same with the company on the last date of the previous year to which the loss belongs.
However, some relaxation has been provided in case of an eligible start-up as referred to in section 80-IAC of the Act. The condition of continuity of at least 51%shareholding is not applicable to the eligible start-up, if all the shareholders of the company as on the last day of the year, in which the loss was incurred, continue to hold those shares on the last day of the previous year in which the loss is set off.
There is an additional condition that the loss is allowed to be set off, under this relaxation, only if it has been incurred during the period of seven years beginning from the year in which such company is incorporated. In order to align this period of seven years with the period of ten years contained in sub-section (2) of section 80-IAC of the Act, the time period for loss of eligible start-ups to be considered for relaxation is proposed to be increased from seven years to ten years from the date of incorporation.
This amendment will take effect from the 1st day of April, 2023 and shall accordingly, apply in relation to the assessment year 2023-24 and subsequent assessment years.
IMPORTANT PROVISIONS RELATING TO TDS/TCSTDS
1. Online games are now trending these days. The Government has felt that there is a need to bring in specific provisions regarding TDS and taxability of online games due to its different nature, being easily accessible vide the Internet and computer resources with a variety of playing options and payment options. Therefore, it is proposed to amend Section 194B (which covers lottery or crossword puzzle or card game and other game of any sort )to exclude online games from its purview and to include the same in a newly proposed Section 194BA for deduction of TDS on winnings from online games. This will be effective from 1.7.2023.
2. Section 194B is further proposed to be amended to include “gambling or betting of any form or nature whatsoever” within its scope.
3. It is proposed to introduce a new section 115BBJ to tax winnings from online games at the rate of thirty per cent.
4. It is also proposed that the TDS U/S 194B and 194BB shall be on the amount or aggregate of the amounts exceeding Rs. 10,000/-during the financial year to curb the current practice of splitting a winning into multiple transactions each below Rs. 10,000/-
5. TCS on overseas Tour Package is proposed to be 20% without any threshold limit as against 5% at present without any threshold limit.
I have thus covered my analysis on some of the proposal relating to the direct taxes. There are many more Amendments/proposals relating to MSMEs, Co-operative Societies, Start Ups, Trusts, Assessments and Reassessment Provisions, Benami Property Transactions etc. I hope with the threadbare study and discussion of the various provisions by the professionals and within the industry more clarity would emerge in understanding the intricacies of the proposals introduced by the Government.
Author Bio
The 2023-24 Union Budget introduces new measures to enhance tax compliance and ease the burden on taxpayers, while also proposing changes to various direct tax provisions aimed at boosting the country’s revenue collection efforts.