Taxation Simplified: Understanding the Impact of Budget 2023 on Your Wallet

Taxation Simplified: Understanding the Impact of Budget 2023 on Your Wallet

The Budget! Whether it’s your teenage Goa trip, planning for a baby, arranging funds for an event, or planning for the future of your family or institution, we all need to do it; we all need to plan for it. But let’s be honest, the game is on a whole another level for the central government. The government has a lot on its plate – trying to balance the needs of everyone in the country is no easy feat. Will you get a tax cut? Will you finally be able to save more money? With so many questions in mind, it’s easy to get overwhelmed. But don’t worry, we’ve got you covered. We’ve carefully examined the details of Budget 2023 and we’re thrilled to inform you about a few headliners that we believe will have far-reaching implications for you, your family, and your business.

1. Income Tax Slab under New Tax Regime with effect from Financial Year 2023-24

New Tax Regime: The government introduces new tax regime with increased exemption limit and revised income tax slabs. Under the new tax regime, the government has raised the basic exemption limit from Rs 2.5 lakh to Rs 3 lakh. Additionally, there have been changes made to the income tax slabs, resulting in lower tax rates for certain income brackets. The revised income tax slabs have been presented in a table below. Overall, these changes are expected to significantly benefit taxpayers.

Income Tax Slab under New Tax Regime

2. New tax regime offers higher deductions & rebates for salaried individuals

Moreover, the government has introduced a standard deduction of Rs 50,000 for salaried individuals, providing them with an increased tax-free income and enabling them to avail deductions up to Rs 50,000 under the new regime. However, that’s not the only benefit. The rebate available under Section 87A has also been raised from Rs 12,500 to Rs 25,000 for taxable incomes up to Rs 7 lakh, making it more advantageous for taxpayers to choose the new tax regime. This is because there is no requirement to pay income tax for incomes up to Rs 7 lakh.

3. Reduction of Income Tax Surcharge – If Total Income exceeds  Rs. 5 crore

For those super-rich folks earning more than Rs 5 crore per year, the government has proposed to reduce the surcharge from 37% to 25%, thereby reducing their effective tax rate from 43% to 39%. It’s a small win for them, but every penny counts, right?

4. Opting for Old vs. New regime

Deciding between the Old and New tax regimes is not a simple task and requires careful consideration of various factors. From my experience, it is a case-by-case decision, and the recommended regime may differ for the same assessee in different years. This is because the tax liability depends on the taxpayer’s income level, age, investment options, and deductions. Therefore, it is crucial to calculate the tax liability under both regimes and compare the results to determine which one is more beneficial. The New regime may be more advantageous for some taxpayers, while the Old regime may be more beneficial for others. The best approach is to calculate the deductions and exemptions specific to your case and make an informed decision about which regime to choose.

5. Limit for Leave Encashment Exemption Increased

The Income-tax Act of 1961 has provisions for the exemption of leave encashment for employees who retire from their service after accumulating earned leave. The current exemption limit for such leave encashment is set at Rs. 3 lakhs, but it has been proposed to be raised to Rs. 25 lakhs. This increase in the exemption limit will benefit non-government employees who are not covered by the Central or State Government Leave Encashment rules. The exemption is available for encashment of up to 10 months of average salary at the time of retirement. This proposal will take effect from the financial year 2023-24 onwards.

6. Enhancement in Limit of Presumptive Taxation under Section 44AD & 44ADA

The proposed changes to presumptive taxation schemes under Section 44AD and Section 44ADA of the Income Tax Act in India aim to increase the threshold limit for small businesses and professionals to avail of the presumptive taxation scheme. This means that small businesses with a turnover of up to Rs. 3 crores and professionals with an annual gross receipt of up to Rs. 75 lakhs can benefit from the presumptive taxation scheme.

However, to be eligible for the scheme, at least 95% of the transactions must be made in non-cash mode. The intention behind this proposal is to ease the compliance burden on small businesses and professionals and simplify the tax filing process.

Here is a table summarizing the previous and revised limits for presumptive taxation under Section 44AD and Section 44ADA:

*Subject to the condition that at least 95% of the transactions are made in non-cash mode.

7. Tax Benefits & Deductions for Enrollees in Agnipath Scheme 2022

Under the Agnipath Scheme 2022, funds received from the Agniveer Corpus Fund by enrolled individuals will be exempt from tax as per Section 10(12C). In addition, a new Section 80CCH deduction has been proposed, allowing individuals who enroll in the scheme on or after November 1, 2022, to deduct the amount of contributions made to the fund. This deduction applies to both old and new tax regimes. Moreover, the Central Government’s contribution to an individual’s Agniveer Corpus Fund account under the scheme will be regarded as salary under Section 17 provisions, and a corresponding Section 80CCH deduction will be available.

8. Start-Ups Get Tax Relief on Loss Carry-Forward and Set-Off

The government has provided relief to eligible start-ups by relaxing Section 79 of the Income Tax Act. Normally, a company must have at least 51% shareholding continuity to carry forward and set off its losses. However, for eligible start-ups under Section 80-IAC, this condition will not apply if all shareholders as of the last day of the year in which the loss was incurred continue to hold their shares on the last day of the year in which the loss is set off. This relaxation only applies to losses incurred during the first seven years from the year of incorporation. These amendments will be effective from the assessment year 2023-24 onwards.

9. Increase in investment limit – Senior Citizen Savings Scheme (SCSS)

Moving on, let’s talk about small savings schemes. For senior citizens, the government has increased the investment limit in the Senior Citizen Savings Scheme (SCSS) from Rs 15 lakhs to Rs 30 lakhs. This is fantastic news for those who rely on SCSS interest for their regular income, as the interest rate of SCSS is typically higher than FD interest rates for senior citizens in commercial banks.

10. Mahila Samman Savings Certificates (savings scheme) for women

Last but not least, the government has introduced Mahila Samman Savings Certificates, a new small savings scheme exclusively for women. With a fixed interest rate of 7.5% and a tenure of 2 years, this scheme offers a safe investment option and a maximum investment limit of Rs 2 lakhs. It’s a step towards empowering women financially and providing them with the opportunity to save and invest.

In a nutshell, the Budget 2023 is a ray of hope for taxpayers with its new tax regime and simplified tax filing process. It’s time to bid adieu to the taxing tax season and welcome a hassle-free tax regime with open arms. Remember, when it comes to taxes, it’s better to be safe than sorry. So, take the advice of a tax professional and make the most of the new tax benefits and deductions. Happy tax-filing!