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Budget 2023 – Key Highlights

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Union Finance Minister Nirmala Sitharaman on Wednesday 1st February, 2023, presented the Union Budget 2023, the fifth budget of Modi 2.0. Further, Smt. Nirmala Sitharaman said that the Indian economy is on the right path and heading towards a bright future. In a big boost for taxpayers and economy, Smt. Sitharaman announced major changes in tax slabs under the new tax regime and big hike in allocation for railways and capital expenditure.

♦ Birds Eye-View of Union Budget 2023:

Summary of General Points
1. Indian economy has increased in size from being 10th to 5th largest in the world in the past nine years.
2. Employees’ Provident Fund Organisation (EPFO) membership has more than doubled to 27 Crore.
3. 7,400 Crore Digital Payments of Rs.126 lakh Crore has taken place through UPI in 2022.
4. 9.6 crore LPG connections provided under Ujjwala.
5. 47.8 Crore PM Jan Dhan Bank Accounts.
6. Insurance cover for 44.6 Crore persons under PM Suraksha Bima and PM Jeevan Jyoti Yojana.
7. Seven priorities of the budget ‘Saptarishi’ are inclusive development, reaching the last mile, infrastructure and investment, unleashing the potential, green growth, youth power and financial sector.
8. Atmanirbhar Clean Plant Program with an outlay of Rs.2200 Crore to be launched to boost availability of disease-free, quality planting material for high value horticultural crops.
9. Urban Infrastructure Development Fund (UIDF) will be established through use of priority Sector Lending shortfall, which will be managed by the National Housing Bank, and will be used by Public Agencies to create Urban Infrastructure in Tier 2 and Tier 3 cities.
10. Entity Digi-Locker to be setup for use by MSMEs, large business and charitable trusts to store and share documents online securely.
11. 100 labs to be setup for 5G services based application development to realize a new range of opportunities, business models, and employment potential.
12. Pradhan Mantri Kaushal Vikas Yojana 4.0, to be launched to skill lakhs of youth within the next three years covering new age courses for Industry 4.0 like coding, AI, robotics, mechatronics, IOT, 3D printing, drones, and soft skills.
13. Central Processing Centre to be setup for faster response to companies through centralized handling of various forms filed with field offices under the Companies Act.
14. The maximum deposit limit for Senior Citizen Savings Scheme to be enhanced from Rs.15 lakh to Rs.30 lakh.
15. New Infrastructure Finance Secretariat established to enhance opportunities for private investment in infrastructure.
16. National Digital Library for Children and Adolescents to be set-up for facilitating availability of quality books across geographies, languages, genres and levels, and device agnostic accessibility.
17. More than 39,000 compliances reduced and more than 3,400 legal provisions decriminalized to enhance Ease Of Doing Business.
18. PAN will be used as the common identifier for all digital systems of specified government agencies to bring in Ease of Doing Business.
19. 95% of the forfeited amount relating to bid or performance Security, will be returned to MSME’s by government and government undertakings in cases the MSME’s failed to execute contracts during Covid period.

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Summary of Direct Taxes
1. Direct Tax proposals aim to maintain continuity and stability of taxation and further simplify and rationalise various provisions to reduce the compliance burden, promote the entrepreneurial spirit and provide tax relief to citizens.
2. To further improve tax payer services, proposal to roll out a next-generation Common IT Return Form for tax payer convenience, along with plans to strengthen the grievance redressal mechanism.
3. Rebate limit of Personal Income Tax to be increased to Rs. 7 lakh from the current Rs. 5 lakh in the new tax regime. Thus, persons in the new tax regime, with income up to Rs. 7 lakh to not pay any tax.
4. Tax structure in new personal income tax regime, introduced in 2020 with six income slabs, to change by reducing the number of slabs to five and increasing the tax exemption limit to Rs. 3 lakh. Change to provide major relief to all tax payers in the new regime.
5. Proposal to extend the benefit of standard deduction of Rs. 50,000 to salaried individual, and deduction from family pension up to Rs. 15,000, in the new tax regime.
6. Highest surcharge rate to reduce from 37% to 25% in the new tax regime. This to further result in reduction of the maximum personal income tax rate to 39 per cent.
7. The limit for tax exemption on leave encashment on retirement of non-government salaried employees to increase to Rs.25 lakh.
8. The new income tax regime to be made the default tax regime. However, citizens will continue to have the option to avail the benefit of the old tax regime.
9. Enhanced limits for micro enterprises and certain professionals for availing the benefit of presumptive taxation proposed. Increased limit to 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.
10. Deduction for expenditure incurred on payments made to MSMEs to be allowed only when payment is actually made in order to support MSMEs in timely receipt of payments.
11. New co-operatives that commence manufacturing activities till 31.3.2024 to get the benefit of a lower tax rate of 15 per cent, as presently available to new manufacturing companies.
12. A higher limit of Rs.3 Crore for TDS on cash withdrawal to be provided to co-operative societies.
13. Date of incorporation for income tax benefits to start-ups to be extended from 31st March, 2023 to 31st March, 2024.
14. Proposal to provide the benefit of carry forward of losses on change of shareholding of start-ups from 7 Years of incorporation to 10 Years.
15. Deduction from Capital Gains on investment in residential house under sections 54 and 54F to be capped at Rs.10 Crore for better targeting of tax concessions and exemptions.
16. Proposal to limit income tax exemption from proceeds of insurance policies with very high value. Where aggregate of premium for life insurance policies (other than ULIP) issued on or after 1st April, 2023 is above Rs. 5 lakh, income from only those policies with aggregate premium up to Rs. 5 lakh shall be exempt.
17. Minimum threshold of Rs. 10,000/- for TDS to be removed and taxability relating to online gaming to be clarified. Proposal to provide for TDS and taxability on net winnings at the time of withdrawal or at the end of the financial year.
18. Conversion of gold into electronic gold receipt and vice versa not to be treated as capital gain.
19. TDS rate to be reduced from 30% to 20% on taxable portion of EPF withdrawal in non-PAN cases.
20. Deployment of about 100 Joint Commissioners for disposal of small appeals in order to reduce the pendency of appeals at Commissioner level.
21. TDS on payment of certain income to a non-resident is currently at the rate of 20%, but the tax rate in treaties may be lower. It is proposed to allow the benefit of tax treaty at the time of TDS on such income under section 196A of the Act.
22. Higher TDS/TCS rate applies, if the recipient is a non-filer i.e. who has not furnished his return of income of preceding previous year and has aggregate of TDS and TCS of Rs.50,000 or more. It is proposed to exclude a person who is not required to furnish the return of income for such previous year and who is notified by the Central Government in the Official Gazette in this behalf.
23. It is proposed to clarify that the amount of advance tax paid is reduced only once for computing the interest payable under section 234B in the case of an updated return.
24.
  • It has been observed that some assessees have been claiming double deduction of interest paid on borrowed capital for acquiring, renewing or reconstructing a property Firstly, it is claimed in the form of deduction from income from house property under section 24, and in some cases the deduction is also being claimed under other provisions of Chapter VIA of the Act. Secondly while computing capital gains on transfer of such property this same interest also forms a part of cost of acquisition or cost of improvement under section 48 of the Act.
  • In order to prevent this double deduction, it is proposed to insert a proviso after clause (ii) of the section 48 so as to provide that the cost of acquisition or the cost of improvement shall not include the amount of interest claimed under section 24 or Chapter VIA.
25.
  • The rate of TCS for foreign remittances for education and for medical treatment is proposed to continue to be 5% for remittances in excess of Rs.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% in excess of Rs.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% to 20%.
26. Tax on capital gains can be avoided by investing proceeds of such gains in residential property. This is proposed to be capped at Rs.10 crore under section 54 and 54F.
27. It is proposed to omit certain name-based funds from section 80G of the Act, which provides for deduction of donation to such funds from the income of the donor. The funds that are proposed to be omitted are as below:

  • The Jawaharlal Nehru Memorial Fund referred to in the Deed of Declaration of Trust adopted by the National Committee at its meeting held on the 17th day of August, 1964;
  • The Indira Gandhi Memorial Trust, the deed of declaration in respect whereof was registered at New Delhi on the 21st day of February, 1985;
  • The Rajiv Gandhi Foundation, the deed of declaration in respect whereof was registered at New Delhi on the 21st day of June, 1991.
  • This amendment will take effect from the 1st day of April, 2024.
28. There are certain assets like intangible assets or rights for which no consideration has been paid for acquisition and the transfer of which may result in generation of income. Their cost of acquisition is proposed to be defined to be NIL.

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Summary of Indirect Taxes
1. Number of basic customs duty rates on goods, other than textiles and agriculture, reduced to 13 from 21.
2. Minor changes in the basic custom duties, cesses and surcharges on some items including toys, bicycles, automobiles and naphtha.
3. Excise duty exempted on GST-paid compressed bio gas contained in blended compressed natural gas.
4. Customs Duty on specified capital goods/machinery for manufacture of lithium-ion cell for use in battery of electrically operated vehicle (EVs) extended to 31st March, 2024.
5. Customs duty on camera lens and its inputs/parts for use in manufacture of camera module of cellular mobile phone reduced to zero and concessional duty on lithium-ion cells for batteries extended for another year.
6. Basic customs duty reduced on parts of open cells of TV panels to 2.5%.
7. Basic customs duty on electric kitchen chimney increased to 15% from 7.5%.
8. Basic customs duty on heat coil for manufacture of electric kitchen chimneys reduced to 15% from 20%.
9. Basic customs duty rate on compounded rubber increased to 25% from 10% OR 30 per kg whichever is lower.
10. National Calamity Contingent Duty (NCCD) on specified cigarettes revised upwards by about 16%.

Budget 2023

Tax Rates [Individuals/ HUF/ AoP/ BoI]:

Old Tax Regime

 New Tax Regime
For Individuals

(Other than Senior Citizens and Super Senior Citizens)

 For Individuals, Hindu undivided Family/ BOP/ AOP (Other than co-op society)/ AJP if they so opt for
Income Slab Rate Income Slab Rate
Up to Rs.2,50,000 Nil Up to Rs.3,00,000 Nil
Rs.2,50,001 to Rs.5,00,000 5% Rs.3,00,001 to 6,00,000 5%
Rs.6,00,001 to 9,00,000 10%
Rs.5,00,001 to Rs.10,00,000 20% Rs.9,00,001 to 12,00,000 15%
Rs.12,00,001 to 15,00,000 20%
Above Rs.10,00,000 30% Above Rs.15,00,000 30%
 Notes for Individuals and Senior Citizen:

  • Surcharge:

√ 10% if total income exceeds Rs. 50 Lakhs;

√ 15% if total income exceeds Rs. 1 Crore but doesn’t exceed Rs. 2 Crore;

√ 25% if total income exceeds Rs. 2 Crore but doesn’t exceed Rs. 5 Crore;

√ 37% if total income exceeds Rs. 5 Crore;

  • Health & Education cess at 4% of Income Tax & Surcharge;
  • Relief u/s 87A up to Rs. 12,500 for resident individuals with total income of up to Rs. 5,00,000;
  • One can exercise option under Section 115BAC.
  Conditions:

  • No deduction or Exemption for as given in 115BAC(2)(i) shall be allowed;
  • Standard Deduction of Salary Income of Rs.50,000;
  • Deduction of family pension income u/s 57(iia) allowed up to Rs.15,000;
  • Contribution of the Government to Agniveer Corpus fund proposed to be allowed as deduction under 80CCH(2);
  • For Individuals, HUF, AOP (other than co-operative), BOI and AJP under the new regime highest rate of surcharge previously 37% has been reduced to 25%.
 Note:

♦ The new tax regime for Individual and HUF, introduced by the Finance Act 2020, is now proposed to be the default regime. This regime would also become the default regime for AOP (other than co-operative), BOI and AJP. But there will be an option to avail the old regime yet.

♦ Any individual, HUF, AOP (other than co-operative), BOI or AJP not willing to be taxed under this new regime can opt to be taxed under the old regime.

♦ For those persons having income under the head “profit and gains of business or profession” and having opted for old regime can revoke that option only once and after that they will continue to be taxed under the new regime.

♦ For those not having income under the head “profit and gains of business or profession”, option for old regime may be exercised in each year.

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Old Tax Regime
For Senior Citizens (60 –80 years) For Super Senior Citizens (>80 years)
Income Slab Rate Income Slab Rate
Up to Rs. 3,00,000 Nil Up to Rs 5,00,000 Nil
Rs. 3,00,001 to Rs. 5,00,000 5% Rs 5,00,001 to Rs 10,00,000 20%
Rs 5,00,001 to Rs 10,00,000 20% Above Rs 10,00,000 30%
Above Rs 10,00,000 30%
Notes for Super Senior Citizen:

  • Surcharge:

√ 10% if total income exceeds Rs. 50 Lakhs;

√ 15% if total income exceeds Rs. 1 Crore but doesn’t exceed Rs. 2 Crore;

√ 25% if total income exceeds Rs. 2 Crore but doesn’t exceed Rs. 5 Crore;

37% if total income exceeds Rs. 5 Crore;

  • Health & Education cess at 4% of Income Tax & Surcharge;
  • One can exercise option under Section 115BAC.
  • Tax Rates [Corporate Bodies]:

Domestic Company
Particulars Rate
Company opting for section 115BA

[Surcharge: 7% if total income exceeds Rs. 1 Crore and 12% if total income exceeds Rs. 10 Crores]

 25%
Company having turnover or gross receipt of up to Rs. 400 crore in the previous year 2020-21

[Surcharge: 7% if total income exceeds Rs. 1 Crore and 12% if total income exceeds Rs. 10 Crores]

 25%
Company opting for section 115BAA

[Surcharge shall be levied at the flat rate of 10%.]

 22%
Company opting for section 115BAB

[MAT shall not be applicable in case of Insurance & Shipping Cos. and Cos. opting for Section 115BAA or Section 115BAB]

 15%
Any other company

[Surcharge: 7% if total income exceeds Rs. 1 Crore and 12% if total income exceeds Rs. 10 Crores]

 30%
MAT

[Surcharge shall be levied at the flat rate of 10%]

 15%

–

Foreign Companies
Tax Rate: 40%
Surcharge: 2% if total income exceeds Rs. 1 Crore and 5% if total income exceeds Rs. 10 Crores
Health & Education Cess at 4% of Income Tax & Surcharge

–

Partnership Firm
Tax Rate: 30%
Surcharge at 12% if total income exceeds Rs. 1 Crore
Health & Education Cess at 4% of Income Tax & Surcharge

–

For Co-Operative Society
Option to pay tax @ 22% u/s 115BAD subject to certain conditions.
Proposed new section 115BAE of the Act
New manufacturing Co-op Society set up after 01/04/2023 and manufacturing commence on or before 31/03/2024, can opt concessional tax rate @ 15% (AY 2024-25 onwards)

Surcharge @ 10%

♦ Promoting Timely Payments to Micro and Small Enterprises:

  • It is proposed to insert a new Clause (h) in Section 43B of the Act to include payments made to such enterprises within the ambit of Section 43B of the Act;
  • Deduction will be allowed only on actual basis. 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. This amendment will take effect from 1st April, 2024 (A.Y.2024-25).

♦ Other Measures:

Threshold limit for co-operatives to withdraw cash without TDS (Section 194N)
Existing Provision Proposed Provision
Co-Operative Society engaged in carrying on the business of banking shall deduct TDS on payment of Rs.1 Crore or more in cash to any person. The limit of Rs.1 Crore is proposed to be increased to Rs.3 Crores in a year without being subjected to TDS on withdrawal of cash.
Penalty for Cash Loan/ Transactions against Primary Co-Operatives
Existing Provision Proposed Provision
The limit for acceptance and repayment of any loan or deposit from any person in cash was permissible up to Rs.20,000.
  • It is proposed to enhance the limit to Rs.2,00,000 in case of acceptance and repayment of any loan or deposit by/ from primary agricultural credit society or a primary co-operative agricultural and rural development bank from/ to its member in cash.
  • This would mean that no penalty will be levied if the amount of loan or deposit in cash is less than Rs.2,00,000.
Relief to start-ups in carrying forward and setting off of losses
Existing Provision Proposed Provision
Under the current tax regime, the condition of continuity of at least 51% shareholding for setting off of carried forward losses is relaxed for an eligible start up if all the shareholders of the company continue to hold those shares. At present this relaxation applies for losses incurred during the period of 7 years from incorporation of such start-up. It is proposed to increase this period to 10 years.
Concessional Tax to promote New Manufacturing Co-Operative Society
Existing Provision Proposed Provision
The concessional rate of tax under Section 115BAB was applicable to only new manufacturing domestic companies.
  • In order to promote the growth of Manufacturing in    Co-Operative Sector, a New Co-Operative Society formed on or after 1st April, 2023, which commences manufacturing or production by 31st March, 2024 and do not avail of any specified incentive or deduction, is proposed to be allowed an option to pay tax at a concessional rate of 15% similar to what is available to new manufacturing companies;
  • The amendment is proposed to take effect from 1st April, 2024.
Increasing threshold limits for Presumptive Taxation Schemes
Existing Provision Proposed Provision
  • Presumptive income scheme u/s 44AD of the Act for small businesses. This scheme applies to certain resident assesses (i.e. an individual, HUF or a partnership firm other than LLP) carrying on eligible business and having a turnover or gross receipt of 2 Crore rupees or less.
  • Presumptive income scheme u/s 44ADA of the Act for small professionals. This scheme applies to certain resident assesses (i.e.an individual, partnership firm other than LLP) who are engaged in any profession referred to in sub section (1) of section 44AA, and whose total gross receipts do not exceed 50 lakh rupees in a previous year.
  • Under section 44AD of the Act, for eligible business, where the amount or aggregate of the amounts received during the previous year, in cash, does not exceed 5% of the total turnover or gross receipts, at threshold limit of 3 Crore rupees will apply.
  • Under section 44ADA of the Act, 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 5 % of the total gross receipts, a threshold limit of 75 lakh rupees will apply.
  • 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.
TDS and taxability on net winnings from online games
For online games, it is proposed to provide for TDS and taxability on net winnings at the time of withdrawal or at the end of the financial year. Moreover, TDS would be without the threshold of Rs.10,000. For lottery, cross word puzzles games, etc. threshold limit Rs.10,000 for TDS shall continue but shall apply to aggregate winnings during a financial year.
Sum received under a life insurance policy will be taxable
It is proposed to provide that where aggregate of premium for life insurance policies (other than ULIP) issued on or after 1st April, 2023 is above Rs.5 lakh, income from only those policies with aggregate premium up to Rs. 5 lakh shall be exempt. 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.

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Disclaimer: The entire contents of this article have been prepared based on relevant provisions and as per the information existing at the time of the preparation. Although utmost care has been taken to ensure the accuracy, completeness, and reliability of the information provided, I assume no responsibility, therefore. Users of this information are expected to refer to the relevant existing provisions of applicable Laws. The user of the information agrees that the information is not a piece of professional advice and is subject to change without notice. I assume no responsibility for the consequences of the use of such information.

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