10 Key Direct Tax Changes Introduced In The Budget (Detailed Analysis) – For Non-Corporate Taxpayers
INTRODUCTION
Union Minister of Finance and Corporate Affairs, Smt. Nirmala Sitharaman presented the India Union Budget 2023-24 in Parliament on 1st February 2023. The union budget seeks to build on the foundation laid earlier, and aims to provide stability and simplification, improve ease of doing business, rationalize various provisions to reduce the compliance burden, promote the entrepreneurial spirit, and provide tax relief to citizens.
The tax proposals in the budget were focused on rationalization and simplification with some important changes which are discussed in detail later in this document. Major tax exemptions/reliefs have been granted under the new tax regime applicable to individuals. Apart from an overhaul of the new tax regime, the budget maintained its focus on supporting MSMEs and Startups, as well as on dispute resolution, and improving compliance.
DIRECT TAX PROPOSALS
Key Direct tax proposals in the union budget for Non-Corporate Taxpayers are set out below:
- Common Income Tax Return Form for easy of filing the return
- Changes in Personal Taxes for Individual/HUF/AOP/BOI
- Ensuring Timely Payment to MSMEs
- Increase in Limits of Presumptive Taxation Scheme
- Taxation w.r.t Capital Gains
- Taxation w.r.t Salary Income
- Taxation w.r.t Business Income
- Removal of Exemption/Threshold for Tax deduction at source
- Increase in the rate of tax collected at the source of certain remittances
- Other important amendments proposed w.r.t Non-Resident and Business Trusts.
Let’s discuss each proposal in detail:
Page Contents
- PROPOSAL 1: COMMON INCOME TAX RETURN FORM FOR EASE OF FILING THE RETURN
- PROPOSAL 2: CHANGES IN PERSONAL TAXES FOR INDIVIDUAL/HUF/AOP/BOI/AJP
- PROPOSAL 3: TIMELY PAYMENT TO MSME
- PROPOSAL 4: CHANGES IN THE PRESUMPTIVE TAXATION SCHEME
- PROPOSAL 5: TAXATION W.R.T CAPITAL GAIN
- PROPOSAL 6: TAXATION W.R.T SALARY INCOME
- PROPOSAL 7: TAXATION W.R.T BUSINESS INCOME
- PROPOSAL 8: CHANGES IN PROVISIONS FOR TAX DEDUCTION AT SOURCE (TDS)
- PROPOSAL 9: INCREASE IN RATE OF TAX COLLECTED AT SOURCE OF CERTAIN REMITTANCES
- PROPOSAL 10: OTHER IMPORTANT AMENDMENTS PROPOSED
PROPOSAL 1: COMMON INCOME TAX RETURN FORM FOR EASE OF FILING THE RETURN
In the Union Budget 2023-24, the finance minister proposed introducing a next-generation “Common Income Tax Return (ITR) Form” for the convenience and benefit of taxpayers. CBDT had already released a draft Common Income tax Return form for aid in simplification of the tax return filing process by consolidating the various ITR Forms 1 to 7 under a common ITR Form with a question-based wizard system. The detailed article already shared can be accessed at: https://taxguru.in/income-tax/common-itr-aid-simplification-tax-return-filing-process.html
PROPOSAL 2: CHANGES IN PERSONAL TAXES FOR INDIVIDUAL/HUF/AOP/BOI/AJP
Various announcements have been made related to personal Income taxes with a specified focus on New Tax Regime, which can be understood as under:
- OLD TAX REGIME
| Changes Proposed | Existing Provisions | Proposed Provisions |
| Income tax slabs, rates, surcharge rates, cess, and rebate remain unchanged under the Old Tax regimes | 1. Existing Slab Rates (3 categories – Normal, Senior Citizen, and Super Senior Citizen)
2. Rebate of Rs. 12,500 if Total Incom is upto Rs. 5 Lakhs 3. Maximum Surcharge rate is 37% (for income exceeding 5 Crore). |
No Change Proposed |
| Default Tax Regime | Earlier, the Old Tax regime was the default tax regime and taxpayers have to opt for New Tax Regime by filing an additional Form 10-IE before the filing of the income tax return. | It is proposed to make the new tax regime the default tax regime. The taxpayer has to opt for Old Regime specifically. |
- NEW TAX REGIME
| Changes Proposed | Existing Provisions | Proposed Provisions | ||||||||||||||||||||||||||
| Basic Exemption Limit | Earlier, the basic exemption limit for taxpayers was 2.5 Lakhs. | Enhanced from an existing limit of Rs. 2.5 Lakhs to Rs. 3 Lakhs | ||||||||||||||||||||||||||
| Income tax rates and Slabs |
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| Rebate under Section 87A (for resident individuals) | 100% of the tax payable on a total income not exceeding 5 lakhs. | 100% of the tax payable on a total income not exceeding 7 lakhs. | ||||||||||||||||||||||||||
| Standard Deduction for Salaried Individuals and Pensioners (including Family Pension) | Earlier, no deduction was allowed. | A deduction of Rs. 50,000 will be allowed, whereas a deduction up to Rs. 15,000, in the case of a Family Pension. | ||||||||||||||||||||||||||
| Surcharge for income covered by Section 111A, 112, 112A, 115AD(1)(b), Dividend Income and AOPs (with only companies as its members) |
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No Changes Proposed | ||||||||||||||||||||||||||
| Surcharge other than the above category (Maximum Surcharge Restricted to 25%) |
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PROPOSAL 3: TIMELY PAYMENT TO MSME
In order to prioritize and promote timely payments to Micro or Small Enterprises, it is proposed to add a clause (h) in Section 43B of the Act to provide that
| New Provisions Proposed to be inserted | Impact |
| 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 a deduction only on actual payment. | Deduction in respect of delayed (beyond the period prescribed under MSMED Act, 2006) payment to MSMEs to be allowed in the year of actual payment.
In other words, expenses can be allowed as per accrual basis only if the payment is made as per Section 15 of the MSMED Act. |
| Also, proposed that benefit of proviso to Section 43B shall not be available. | Extended time relaxation until the due date of the return filing is not available in such cases. |
* 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.
PROPOSAL 4: CHANGES IN THE PRESUMPTIVE TAXATION SCHEME
In order to ease compliance and to promote non-cash transactions, it is proposed to increase the threshold limits for the presumptive schemes in section 44AD and section 44ADA of the Act on fulfilment of certain conditions. Accordingly, subsequent changes are proposed in Section 44AB of the Act.
| Existing Provisions | Proposed Provisions |
| 44AD: Resident Individuals running an eligible business and having a turnover of Rs. 2 Crore or less can declare their profit at 6% or 8%, as the case may be, of the turnover or any higher sum subject to certain conditions. | For eligible businesses, where the amount or aggregate of the amounts received during the previous year, in cash, does not exceed five percent of the total turnover or gross receipts, a threshold limit of Rs. 3 crores will apply. |
| 44ADA: Resident Assessee (i.e. individuals, Partnership firm other than LLP) engaged in Professional as per Sec 44AA and having gross receipts of Rs. 50 Lakhs or less can declare its profit at 50% or any higher sum. | For eligible professions, where the amount or aggregate of the amounts received during the previous year, in cash, does not exceed five percent of the total gross receipts, a threshold limit of Rs. 75 lakhs will apply. |
| 44BB & 44BBB: Provided for 10% of presumptive tax on income earned by Non-residents taxpayers engaged in oil Exploration (44BB) and Civil Construction (44BBB).
It was observed that such taxpayers were opting in and out of presumptive taxation to avail the benefits of both presumptive and non-presumptive scheme. |
It is proposed to insert a new sub-section in Section 44BB and Section 44BBB of the IT Act to provide that where the income in any AY is offered on a presumptive basis, set-off of unabsorbed depreciation and brought forward business loss will not be allowed. |
PROPOSAL 5: TAXATION W.R.T CAPITAL GAIN
| Proposed Change | Existing Provisions | Proposed Provisions |
| Limiting the benefit claimed for reinvestment in a residential house under Sections 54 and 54F. | The existing provisions of section 54 and section 54F of the Income-tax, 1961 (the Act) allow 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. | It is proposed to impose a limit on the maximum deduction that can be claimed by the assessee under sections 54 and 54F to Rs. 10 crores. It has been provided that if the cost of the new asset purchased is more than Rs. 10 crores, the cost of such asset shall be deemed to be Rs. 10 crores. This will limit the deduction under the two sections to ten crore rupees. |
| Special provisions for Taxation in case of Market Linked Debentures (definition has been inserted in the bill) | Currently being taxed as Long-Term Capital Gain (LTCG) @ 10% without indexation. | New section 50AA is proposed to be inserted to tax such redemption/maturity as Short Term Capital Gains at the applicable rates. |
| Rationalization of Exempt Income under Life Insurance Policies | Clause (10D) of section 10 of the Act provides for income-tax exemption on the sum received under a life insurance policy, including a bonus on such policy. There is a condition that the premium payable for any of the years during the terms of the policy should not exceed ten percent of the actual capital sum assured.
Further, last year, ULIP policies where premium made was more than Rs. 2.5 Lacs were bought out of the exemption provisions. |
To curb the misuse of this exemption clause, it is further proposed to insert a new proviso to tax income from Insurance policies (other than ULIP) having a premium or aggregate of premium above Rs. 5,00,000 in a year.
It shall be applicable for the policies issued on or after 01.04.2023 and such income shall be taxed as “Income from other Sources” after providing a deduction for the premium paid. |
| Double Deduction claimed on Interest on Borrowed Capital for Acquiring, Renewing or Reconstructing a Property | Under existing provisions, interest payable on Borrowed capital for acquiring, renewing, or reconstructing a property is allowed as deducted from “House property” under Section 24 of the act.
Also, some taxpayers claimed double deduction under Section 48, by treating such amount as Cost of Acquisition or Cost of Improvement. |
To avoid such double deduction, It is proposed to insert a new proviso to Section 48 of the act, that the cost of Acquisition or cost of improvement shall not include the amount of interest claimed under Section 24. |
PROPOSAL 6: TAXATION W.R.T SALARY INCOME
| Proposed Change | Existing Provisions | Proposed Provisions |
| Valuation of Residential Accommodation provided to the employees | As per clause (2) of Section 17 of the IT Act, “perquisite” inter alia includes the value of rent-free accommodation or the value of any concession in the matters of rent provided to employees by the employer.
Currently, the Value of Rent Free Accommodation is prescribed under Rule 3 of Income tax rules, whereas the value of concessional rent provided to employees is prescribed in Explanation to Clause (2) of section 17. |
It is proposed to amend the necessary sections and provide a uniform methodology for valuing the rent-free accommodation and Concession on rent provided under the prescribed rules. |
| Standard Deduction of Rs. 50,000 under the New Regime | Earlier, the standard deduction was only allowed in Old Regime. No deduction was available for New Regime taxpayers. | The benefit has been extended to the new regime taxpayers also. |
| TDS on Withdrawal of Accumulated Balance of PF | Earlier, in the case of Non-PAN Employees, TDS was deducted at Maximum Marginal Rate, as per Section 192A. | The clause has been omitted and the TDS shall now be deducted as per Section 206AA @ 20%. |
PROPOSAL 7: TAXATION W.R.T BUSINESS INCOME
| Proposed Change | Existing Provisions | Proposed Provisions |
| Claiming Deduction on Amortization of Preliminary Expenses
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Section 35D of the Act provides for amortization of certain preliminary expenses which are incurred prior to the commencement of business or after commencement, in connection with an extension of undertaking or setting up of a new unit. This includes expenditure in connection with the preparation of feasibility reports, project reports, etc.
The work in connection with the preparation of feasibility report or the project report or the conducting of market survey or of any other survey or the engineering services would need to be carried out either by the assessee himself or by a concern which is approved by the CBDT. |
It is proposed to remove the condition of activity in connection with these expenses to be carried out by a concern approved by the CBDT, to ease out the process of claiming amortization of such preliminary expenses.
Instead, the assessee shall be required to furnish a statement containing the particulars of this expenditure in the prescribed form and manner. |
| Clarity on Benefits and Perquisites in Cash | Clause (iv) of Section 28 brings to chargeability the value of any benefit or perquisite, whether convertible into money or not,
arising from business or the exercise of a profession. However, the courts interpreted that if the benefit or perquisites are in cash, it is not covered within the scope of this section. |
Section 28(iv) of the IT Act is proposed to be amended to include benefits or perquisites arising from business or exercise of a profession which is in cash or kind or partly in cash and partly in kind.
The proposal seeks to nullify the position laid down by the court. Similarly, even in Section 194R, which deals with TDS on such benefits and perquisites, it shall be amended to include the benefits or perquisites which are in cash or in kind or partly in cash and partly in kind. |
PROPOSAL 8: CHANGES IN PROVISIONS FOR TAX DEDUCTION AT SOURCE (TDS)
| Proposed Change | Existing Provisions | Proposed Provisions |
| Removal of Exemption from TDS on Payment of interest on Listed Debentures to a Resident | As per Clause (ix) of the proviso to Section 193, no tax is to be deducted in the case of any interest payable on any listed debentures. | Proposed to omit such clause, thereby withdrawing the TDS Exemption on interest on listed debentures. (This provision will be applicable for FY 22-23 also.) |
| Net Winnings from Online Gaming | Earlier, as per Section 194B, TDS was required to be deducted on an amount exceeding Rs. 10,000.
However, the industry was applying such limit transactions wise i.e. each winning exceeding Rs. 10,000 to avoid TDS applicability. |
New Section 194BA and 115BBJ proposed to provide for TDS @ 30% in case of net winnings from online games (without any threshold limit)
Winnings from Lottery or crossword puzzles or horse races or any other game (as per Sec 194B and 194BB) are to be considered on an aggregate basis to test the threshold for TDS Applicability. |
| Payment of Accumulated Balance of PF to an employee | As per Section 192A, TDS is deducted @ 10% of the taxable component of the lump sum payment due to the employee.
In the case of Non-PAN holders, the tax was deducted at the Maximum Marginal Rate (MMR) |
It is proposed to omit the proviso to Section 192A which deals with non-PAN cases and TDS shall now be deducted @ 20% as per Section 206AA. |
PROPOSAL 9: INCREASE IN RATE OF TAX COLLECTED AT SOURCE OF CERTAIN REMITTANCES
(w.e.f 01st July, 2023)
| S.No. | Type of Remittance | Existing Rate of TCS | Proposed Rate of TCS |
| 1. | Purpose of Education, if the amount being remitted out is a loan obtained from any financial institution | 0.5% of the amount, in excess of Rs. 7 lakhs. | No Change |
| 2. | Purpose of Education (other than covered above) or for Medical Treatment | 5% of the amount, in excess of Rs. 7 lakhs. | No Change |
| 3. | Overseas Tour Package | 5% without any threshold limit | 20% without any threshold limit |
| 4. | Any other Case | 5% of the amount, in excess of Rs. 7 lakhs. | 20% without any threshold limit |
PROPOSAL 10: OTHER IMPORTANT AMENDMENTS PROPOSED
| Proposed Change | Existing Provisions | Proposed Provisions | Impact |
| Non-Resident: Extending deeming provision of gift to Not-Ordinarily Resident (NOR) | Section 9 of the IT Act provides that any sum of money exceeding Rs. 50,000 received by a ‘non-resident’ without consideration from a person resident in India on or after July 5, 2019, is deemed to accrue or arise in India. | It is proposed to amend the above provision to extend the deeming provision to a sum of money exceeding Rs. 50,000 received by a person ‘resident but not ordinarily resident in India’ without consideration from a person resident in India. | Now, both ‘Non-Resident (NR)’ and ‘Resident but not ordinarily Resident (NOR)’ shall be covered by the deeming provision. |
| Tax Avoidance through Distribution by Business Trusts (REIT/InVIT) to its unit holders | The business trusts distribute sums to their unit holders in the following four categories:
1. Interest 2. Dividend 3. Rental Income 4. Repayment of Debts In existing provisions, Interest, Dividend, and Rental Income have been accorded as Pass-Through status and taxed in the hands of unit holders. However, the amount received as repayment of debts does not suffer taxation. |
It is proposed to insert a clause (xii) to section 56 (2), wherein such repayment of debts or any other income other than those covered under Section 115UA, shall be treated as “Income from Other Sources”. | It will avoid the dual non-taxability of any distribution made by the business trust, i.e., income which were exempt in the hands of the Business trust as well as the unit holders. |
| Tax Relief for TDS under Section 196A of the act (w.e.f AY 23-24) | Section 196A provides for TDS on payment of certain income to a Non-Resident or to a foreign company, at the rate of 20%. | It is proposed to amend the section to deduct TDS @
a. 20% b. Rate specified in Tax Treaty |
To provide the benefit of lower tax rate as per the Tax treaty, after furnishing of Tax Residency Certificate (TRC). |
| Eliminate the possibility of Tax avoidance in the case of Angel Tax by a Non-Resident | Section 56(2)(viib) of the Act was inserted to prevent the generation and circulation of unaccounted money through share premium received from resident investors in a closely held company in excess of its fair market value.
However, this section was not applicable for consideration received from Non- Resident investors. |
It is proposed to include the consideration received from a non-resident also under the ambit of clause (viib) by removing the phrase ‘being a resident’ from the said clause. | This will make the provision applicable for receipt of consideration for the issue of shares from any person irrespective of his residency status. |
Disclaimer: The above compilation is for guidance and educational purpose only.
Author – CA Mridul Gupta, MRIDUL GUPTA & CO, Chartered Accountants in Practice from Delhi and can be contacted at [email protected]).
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