Highlights of Union Budget 2023 related to Income Tax

On February 1, 2023, the Union Budget 2023 was presented by Finance Minister in the Parliament, these Budget proposals will become law, once the Finance Bill, 2023 is passed by both Houses of the Indian Parliament and the Bill receives President’s assent. The key income tax proposals are as follows:

• Corporate tax rates: No changes in the corporate tax rates;
• Amendments relating to TDS/ TCS:

> TDS on ‘benefit’ or ‘perquisite’ in respect of a business or profession:  Section 194R to be applicable on any benefit or perquisite whether in cash or in kind or partly in cash or partly in kind;

> Updated definition of ‘specified person’ (Section 206AB and Section 206CCA): Definition of ‘specified person’ to exclude a person who is not required to furnish the return of income and the same has been notified by the Indian Government;

> Increase in TCS rate: With effect from July 1, 2023, TCS on sale of overseas tour package to be increased from 5% to 20% (without any threshold limit).

• Anti-abuse provisions – extended to non-residents: Section 56(2)(viib) taxes the receipt in the hands of private company when shares are issued to ‘resident’ investors at a premium and the consideration exceeds FMV. Now, it has been proposed to expand the scope of section 56(2)(viib) by including non-resident investors as well;
• Introduction of Joint Commissioner (Appeals) [“JC(A)”]: To reduce the burden and pendency of cases at CIT(A) level, a new authority in the form of Joint Commissioner (Appeals) proposed to be established to handle certain categories of cases involving small amount of disputed demand. Further, the selected existing appeals may also be transferred from CIT(A) to JC(A) for speedy disposal and vice-versa;
• Rationalisation of compliances and assessment: Tax officer enabled to file cross-objections before the ITAT against the final assessment order passed post DRP directions (Section 253): Amongst other measures to rationalise filing of relevant appeals before the ITAT, it is proposed that the tax officer can file cross objections in all appeals before the ITAT. This will include orders passed by tax officers post DRP directions.
• Payment to Micro and Small enterprises: Payment made to Micro and Small enterprises to be allowed as deduction under section 43B of the Income-tax Act, 1961 (“Act”) (i.e. on actual payment basis) provided the payment is made within prescribed timelines under the Micro, Small and Medium Enterprises Development Act, 2006 (MSMED Act) (i.e., 15 days or maximum of 45 days as per agreement);
• Relief for start-ups:

> It is proposed that the eligible start-ups should be allowed to carry forward the loss under the relaxation for 10 years (earlier 7 years).

> The time limit for incorporation of eligible start-ups is extended to before April 1, 2024 (earlier April 1, 2023).

• Income tax refund process revamped: As per revamped provisions, the income tax authorities can adjust and also withhold refund till the completion of any pending proceedings after giving due intimation to the taxpayer with prior approval of prescribed authority;
• Deduction of Expenses: As per the currently, specific expenses under section 35D are deductible only if the underlying activity is carried out by the taxpayer himself or by a concern which is approved by the CBDT. It is proposed to remove such requirement and instead, the taxpayer will be required to furnish a statement containing the particulars of expenditure for the mentioned activities, with the tax officer. The form, manner and period for submitting the above details is to be prescribed.
• Revised statutory timelines:

*to be further increased by 12 months for TP cases

• Personal tax rates: Following changes have been proposed:

> The simplified/ new personal tax regime under section 115BAC is proposed to be the ‘Default tax regime’. Taxpayers can still opt to pay under the old tax regime;

> Threshold for computing rebate under section 87A is proposed to be increased from INR 5,00,000 to INR 7,00,000 under the simplified/ new personal tax regime;

> Standard deduction of INR 50,000 has also been proposed to be introduced in simplified/ new personal tax regime;

> Highest rate of surcharge for taxpayers under the simplified/ new personal tax regime has been proposed to be is reduced from 37% to 25%;

> Proposed new slab rate under the simplified/ new personal tax regime:

• Business re-organization: The income tax law provides for filing of ‘modified return’ giving effect of the order of business re-organization within a period of 6 months from the end of the month in which such order was issued by the competent authority. Appropriate provisions in relation to assessment and re-assessment of such modified return have been proposed under the Act;
• Allowability of WHT/ TDS credit in case of mismatch in Form 26AS:

> In cases, where an income has been offered/ reported by the recipient on ‘accrual’ basis but the payer has deducted taxes on the said income in subsequent year, then it is proposed that the taxpayer should not claim such credit in the return of income of subsequent year, instead file an application with the tax officer in such form as may be prescribed, to claim the TDS credit corresponding to the income offered/ reported in previous year;

> The application will need to be filed within 2 years from the end of the financial year in which taxes were deducted. Also, the interest (if any) in case of refund of such WHT/ TDS credit shall be from the date of the application till the date on which such refund is granted to the taxpayer. The amendment is applicable with effect from October 1, 2023;

• Others:

> The cost of acquisition and improvement for ‘intangible assets’ and other rights (for which no consideration was paid for acquisition), has been proposed to be ‘Nil’;

> Transfer pricing information/ documents is to be filed by the taxpayer within 10 days (earlier 30 days) from the date of receipt of notice from AO/ CIT(A). The same can be further extended by making an application to AO/ CIT(A);

> Threshold for applicability of presumptive taxation proposed to be increased from INR 20 million to INR 30 million (for small businesses) and from INR 5 million to INR 7.5 million (for professionals) respectively. Further, specific exemption has been provided from tax audit in case taxpayer opts for presumptive taxation;

> Amendment has been proposed under existing section 142 of the Act allowing the tax officer to direct the taxpayer to get the inventory valued by a Cost Accountant as nominated by the specified authority at any stage of the ongoing proceedings before him.

> Presumptive taxation: The thresholds for availing the benefit of presumptive taxation is proposed to be increased to INR 3 crores (earlier INR 2 crores) and INR 75 lakhs (earlier INR 50 lakhs) for business and professions, respectively, provided that 95% of the receipts is in any mode other than cash. Further, in such cases, there is no requirement for a tax audit under section 44AB of the Act.

> Deemed income: Income as provided in section 56(2)(x) arising outside India and paid by a resident in India to a not ordinarily resident is proposed to be deemed to accrue or arise in India under section 9(1)(viii) of the Act.

> Removal of exemption from TDS on payment of interest on listed securities to a resident: Income to a resident by way of interest on securities is liable to withholding tax under section 193 except for certain exclusions which covered payment of interest on listed debentures to a resident. The said exemption is proposed to be withdrawn.

> Limitation of interest deduction: It is proposed that where deduction for interest on home loan is already claimed under section 24, then such part of the interest shall not be claimed as cost of acquisition / improvement for the purpose of computing capital gains.

> Limitation on the rollover benefit claimed under section 54 and section 54F: It is proposed to impose a limit on the maximum deduction that can be claimed by the taxpayer for investment in capital asset under section 54 and 54F to INR 10 crore. If the cost of the new asset purchased is more than INR 10 crore, the cost of such asset shall be deemed to be INR 10 crore.

Trust the above is useful. Should you require any clarifications or wish to discuss any of the provisions in detail, please do let us know.