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DIRECT TAXES AMENDMENTS PROPOSED BY BUDGET 2023

The following are the key announcements in Budget 2023:

TAX REBATE :-

  • Section 87A rebate increased from the current Rs. 5 Lakhs to Rs. 7 Lakhs in the New tax regime. Currently, those with income up to 5 lakhs do not pay any income tax in both old and new tax regimes. The budget proposes to increase the rebate limit to 7 lakhs in the new tax regime. Thus, persons in the new tax regime, with income up to 7 lakhs will not have to pay any tax.

SURCHARGE RATE :-

  • Highest surcharge rate is reduced from 37% to 25% in the new tax regime.
  • The Budget proposed that for those individuals, HUF, AOP (other than co-operative), BOI and AJP under the new regime, surcharge would be same except that the surcharge rate of 37 per cent will not apply. Highest surcharge shall be 25 percent for income above 2 crores. This would reduce the maximum rate from about 42.7 per cent to about 39 per cent. No change in surcharge is proposed for those who opt to be under the old regime. 
TAXABLE INCOME SURCHARGE RATES

(NEW REGIME)

SURCHARGE RATES

(OLD REGIME)

Above 50 lakh and up to 1 crore 10% 10%
Above 1 crore and up to 2 crore 15% 15%
Above 2 crore  and up to 5 crore 25% 25%
Above 5 crores 25% 37%

SLAB RATE OF INDIVIDUALS/HUF :-

  • The number of slabs in new tax regime is revised, maximum exemption limit is Rs. 3 lakhs.
  • This proposal relates to middle-class individuals. Earlier in the year 2020, the new personal income tax regime with six income slabs starting from 2.5 lakh was introduced. Now in Budget 2023, it is proposed to change the tax structure in this regime by reducing the number of slabs to five and increasing the tax exemption limit to 3 lakh.

The new tax rates are (NEW TAX REGIME):-

SLABS TAX RATES
0-3 lakh NIL
3-6 lakh 5%
6-9 lakh 10%
9-12 lakh 15%
12-15 lakh 20%
Above  15 lakh 30%

NEW TAX REGIME WILL BE DEFAULT NOW

  • From April 1, 2023, the new income tax regime will be your default tax regime. However old regime will continue on option of assessee.

BENEFIT OF STANDARD DEDUCTION IN NEW REGIME ALSO:-

  • Standard deduction of 50,000 to salaried individual, and deduction from family pension up to 15,000 is currently allowed only under the old regime without any threshold on salary Income. It is proposed to allow these two deductions under the new regime also.

 STATUTORY LIMIT OF LEAVE ENCASHMENT :-

  • The limit of 3 lakh for tax exemption on leave encashment on retirement of non-government salaried employees was last fixed in the year 2002, when the highest basic pay in the government was 30,000/- pm. In line with the increase in government salaries, the Budget proposed to increase this limit to 25 lakhs.
  • Note :- For state and central government employees leave encashment is full exempt already. Encashment of earned leave up to 10 months of average salary, at the time of retirement in case of an employee (other than an employee of the Central Government or State Government), is exempt under sub-clause (ii) of clause (10AA) of section 10 of the Income-tax Act (“the Act”) to the extent notified. The maximum amount which can be exempted is 3 lakhs at present. The Budget is proposed to issue notification to extend this limit to 25 lakhs.

TDS U/S 194 N :-

  • Increasing threshold limit for Co-operatives to withdraw cash without TDS.
  • The Budget  proposed to enable co-operatives to withdraw cash up to 3 crores in a year without being subjected to TDS on such withdrawal.

TCS ON FOREIGN REMITTANCE U/S 206C :-

  • The rate of TCS for foreign remittances for education and for medical treatment is proposed to continue to be 5 per cent 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 5 percent 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 per cent to 20 per cent.

LIMIT FOR PRESUMPTIVE TAX SCHEME HIKED:-

  • Increased threshold limits for presumptive taxation schemes.
  • In order to ease compliance and to promote non-cash transactions, it is proposed to increase the threshold limits for presumptive scheme of taxation for eligible businesses from 2 crore to 3 crore and for specified professions from 50 lakh to 75 lakh. The increased limit will 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.

TDS RATE ON EPF WITHDRAWALS REDUCED TO 20% FOR NON PAN CASES:-

  • Tax deducted on EPF withdrawals has been reduced to 20% from 30% in non-PAN cases in Budget 2023. According to the current income tax laws, TDS is deducted on the EPF withdrawal if the money is redeemed within 5 years of the opening of the EPF account. If the PAN is available with the EPFO, then TDS is deducted at the rate of 10% if the withdrawal amount exceeds Rs 50,000. However, if PAN is not available, then TDS is deducted at 30%. (This rate is reduced i.e., 20%). Note that if the EPF withdrawal is made after 5 years, then no TDS is deducted.

CARRY FORWARD LOSSES OF START-UP COMPANY EXTENDED TO 10 YEARS :-

  • Entrepreneurship is vital for a country’s economic development. We have taken a number of measures for start-ups and they have borne results. India is now the third largest ecosystem for start-ups globally, and ranks second in innovation quality among middle-income countries. The Budget is proposing to extend the date of incorporation for income tax benefits to start-ups from 31.03.23 to 31.3.24. The Budget is further proposing to provide the benefit of carry forward of losses on change of shareholding of start-ups from seven years of incorporation to ten years.

Author Bio

CA Pinky Jain is a partner of C P Agrawal & Associates. She is a qualified Chartered Accountant and associate member of Institute of Chartered Accountants of India. She also holds master’s degree in commerce and has expertise in handling Direct & Indirect taxation matters and financial adv View Full Profile

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