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The Union Budget 2023 presented to the parliament on 1 February 2023 aims to bolster infrastructure spending for creating more jobs and attract investment ahead of next year’s national election.

The government proposes to increase capital spending by 33% to 10 trillion rupees ($122 billion) with the intention to facilitate the expansion of the country’s network of roads, ports and airports, and make it an attractive investment destination. The objective being to increase capital formation, employment opportunities and garner growth. Crucial to boosting last-mile connectivity, India has decided to build 50 additional airports, heliports and aerodromes, and identified 100 fresh projects. Railways will also benefit from a record capital outlay of 2.4 trillion rupees.

The spending on the farm sector, which accounts for about 19% of the economy, is also intended to be increased. The budget proposes to spend 22 billion rupees ($269 million) on high-value horticulture and set up an agriculture accelerator fund to finance farm start-ups.

There is a plan to capture the surge in travel demand, 50 destinations would be selected to promote domestic tourism. It will also develop an app to guide tourists on food streets, security, physical and virtual connectivity to lift their experience.

The Budget tries to consolidate the growth momentum achieved by India amidst the global turmoil caused by the pandemic, Ukraine – Russia war, world-wide surge in inflation, and energy crisis. However, the government would need to factor in inflation which has been prevalent in India for many quarters and the budget estimates are based on GDP growth of 6.5 % if 2023-24 and 7 % growth in 2022-23. It would need to be seen how the global challenges will affect India’s trajectory in the coming year.

The budget is absent on any direct tax incentive for the honest hard-working tax paying Indian citizen. Though India has seen growth of business billionaires, individuals who pay their taxes and spend from their taxed income are now burdened by excessive high TCS rates of 20 % form 5 %, if they were to remit money abroad and if they were to tour abroad, which is inequitable in philosophy.

The key would be a fair implementation of the economic policy as the SME, MSME and most of the population has been badly affected by the pandemic, inflation, and loss of jobs. The growth in the organized sector should not be at the cost of the smaller and rural sectors. Hopefully there would be inclusive growth in the coming decade, to lay the foundation of an equitable and prosperous India.

The key amendments introduced by the Budget in relation to the direct tax proposals are provided below.

KEY INCOME-TAX PROPOSALS

Basis Of Charge

Income deemed to accrue or arise in India

[Section 9(1)(viii)]

– Section 9 of the Act provides the types of incomes deemed to accrue or arise in India.

– Section 9(1)(vii) provides that any sum of money exceeding fifty thousand rupees, received by a non-resident from a person resident in India on or after 5 July 2019, shall be income deemed to accrue or arise in India.

This sub-section is proposed to be amended to also include a person resident but not ordinarily resident (R-NOR), as defined under Section 6.

– The amendment will take effect from 1 April 2024 and accordingly would apply in relation to assessment year (AY) 2024-25 and thereafter.

VTPA Comments – This amendment is introduced to tax ‘resident but not ordinarily resident in India’ who receive gifts outside India from persons in India.

Income Not Forming Part of Total Income

Special provisions in respect of newly established Units in Special Economic Zones

[Section 10AA]

– Section 10AA of the Act provides 15 year tax benefit to a unit established in a SEZ which begins to manufacture or produce articles or things or provide any services on or after 1 April 2005. It is proposed to amend the following:

– Proviso to Section 10AA(1)(ii) has been inserted to provide that no deduction shall be available to an assessee who does not furnish a return of income on or before the due date specified under Section 139(1). This proposed amendment will align Section 10AA and Section 143(1) of the Act.

– A new sub-section 4A is proposed to be inserted which states that the deduction will be available to an unit if the proceeds from sale of goods or provision of services is received in, or brought into, India by the assessee in convertible foreign exchange, within a period of six months from the end of the previous year or, within such further period as the competent authority may allow in this behalf.

– An Explanation is inserted to define the term ‘Competent Authority’ and to provide sale of goods or provision of services referred to in this sub-Section shall be deemed to have been received in India where such export turnover is credited to a separate account maintained for the purpose by the assessee with any bank outside India with the approval of the Reserve Bank of India.

– Other explanations have been inserted to define ‘convertible foreign exchange’, ‘export turnover’, etc.

– Section 155(11A) is subsequently amended to include Section 10AA wherein the AO can modify his order where the export earning is realized or brought into India after the permitted period.

– The amendment will take effect from 1 April 2024 and accordingly would apply in relation to AY 2024-25 and thereafter.

Salary Income

Valuation of residential accommodation provided to employees as perquisite

[Section 17(2)]

– As per Section 17(2) of the Act, “perquisite” inter alia includes value of rent-free accommodation or value of any concession in the matters of rent provided to employees by the employer.

– It is proposed to amend Section 17(2)(i) and (ii) to provide uniform methodology in the Rules for computing the value of perquisite and to clearly classify the two categories of perquisites with respect to accommodation provided by the employers.

– Further, it is proposed to substitute Explanation 1 to Explanation 4 to Section 17(2)(ii) by insertion of a new Explanation so as to provide that accommodation shall be deemed to have been provided at a concessional rate if the value of the accommodation computed in the prescribed manner exceeds the rent recoverable from, or payable by, the assessee.

– The amendment will take effect from 1 April 2024 and accordingly would apply in relation to AY 2024-25 and thereafter.

Profits And Gains of Business or Profession

Profits and gains of business or profession

[Section 28(iv)]

– Section 28(iv) is proposed to be amended to include benefits or perquisites, arising from business or profession, in cash or in kind or partly in cash and partly in kind.

– The amendment will take effect from 1 April 2024 and accordingly would apply in relation to AY 2024-25 and thereafter.

VTPA Comments – The above amendment is introduced to clear a long standing issue as to whether for invoking provisions of Section 28(iv), benefit received has to be in some form other than cash.

– The Hon’ble Supreme Court in the case of CIT v. Mahindra & Mahindra Ltd. [2018] 93 taxmann.com 32 (SC) had upheld the same. Therefore, this amendment now aims to also tax those benefits and perquisites received in cash.

Amortisation of certain preliminary expenses

[Section 35D]

– Section 35D of the Act is proposed to be amended to provide ease in claiming deduction or amortization of preliminary expenses.

– Section 35D(2)(a) and the proviso to the said clause includes the activities namely preparation of feasibility report, project report, conducting market survey, etc. to be carried out by a concern approved by the Central Board of Direct Taxes (CBDT) is proposed to be removed.

– The assessee shall furnish a statement containing the particulars of this expenditure within prescribed period to the prescribed income-tax authority, in the prescribed form and manner to claim deduction under the said Section.

– The amendment will take effect from 1 April 2024 and accordingly would apply in relation to AY 2024-25 and thereafter.

Certain deductions to be only on actual payment

[Section 43B]

 

 

– Section 43B provides for certain deductions to be allowed only on actual payment, even if the assessee is offering income to tax on accrual basis. Further, if the payment is made before the due date of filing return of income, the same can be claimed as deduction in the year of accrual.

– It is proposed to include payments made to micro or small enterprises (MSME) within the ambit of Section 43B. Further, the benefit of claiming the deduction of the expense in the year of accrual if payment is made before the due date of filing return of income will not be available in respect of payment to micro or small enterprises.

– The amendment will take effect from 1 April 2024 and accordingly would apply in relation to AY 2024-25 and thereafter.

VTPA Comments – This amendment will facilitate timely payments and improve liquidity for MSME.
Certain deductions to be on actual payments

[Section 43B]

 

 

– The below sections are proposed to be amended to incorporate the new classes of NBFCs.

– In Section 43B, for the words “a deposit taking nonbanking financial company or systemically important non deposit taking non-banking financial company”, the words “such class of non-banking financial companies as may be notified by the Central Government in the Official Gazette in this behalf” shall be substituted.

Special provision in case of income of public financial institutions, public companies, etc.

[Section 43D]

 

– Similarly, in Section 43D also, the above words have been substituted.

 

Limitation on interest deduction in certain cases

[Section 94B(3)]

– Section 94B provides for restriction on deduction of interest expense for a loan from non-resident Associated Enterprise and has been amended to also exclude certain classes of NBFCs.

– The amendment will take effect from 1 April 2024 and accordingly would apply in relation to AY 2024-25 and thereafter.

VTPA Comments – This amendment is proposed, as new regulatory framework of NBFCs have been introduced by RBI. A Scale Based Approach has been proposed and are effective from 1 October 2022 vide Circular dated 22 October 2021. Therefore, consequential amendments are necessary to that effect.

– Further, Section 94B(3) has also been beneficially amended to exclude NBFCs as it only included banking and insurance companies which are not covered by Section 94B(1).

Audit of accounts of certain persons carrying on business or profession

[Section 44AB]

 

 

 

 

 

– Section 44AB of the Act provides for the requirement to carry out tax audit where the turnover exceeds the threshold limits provided therein. Presently, the first Proviso to Section 44AB(a) provide that tax audit is not required where the turnover exceeds INR 1 crore but does not exceed INR 10 crore where receipts and payments in cash does not exceed 5 per cent of the total receipts and payments, respectively.

– It is proposed to substitute the first proviso to Section 44AB(a) to provide taxpayers who are opting to pay tax under Presumptive Scheme (under Section 44AD or Section 44ADA) are not liable to conduct tax audit under Section 44AB.

– The amendment will take effect from 1 April 2024 and accordingly would apply in relation to AY 2024-25 and thereafter.

Special provision for computing profits and gains of business on presumptive basis

[Section 44AD]

 

Special provision for computing profits and gains of profession on presumptive basis

[Section 44ADA]

 

– Section 44AD is proposed to be amended to include a new proviso to Explanation (ii)(b), that if the aggregate of the amounts received during the previous year, in cash, does not exceed five per cent of the total turnover or gross receipts of the previous year, the total turnover upto which an eligible business can opt for this section shall be INR three crores instead of erstwhile INR two crores.

– Further, an amount received by a cheque drawn on a bank or by a bank draft, which is not account payee, shall be deemed to be a receipt in cash.

– Section 44ADA has also been similarly amended to provide that if cash receipts do not exceed five per cent, the total gross receipts upto which an eligible business can opt for this section shall be INR seventy five lakh rupees instead of erstwhile INR fifty lakh rupees.

– Section 44AB which provides for audit provisions has been amended to provide that this section will not be applicable to those persons who declare profits and gains for the previous year in accordance with the provisions of Section 44AD(1) and 44ADA(1).

– The amendment will take effect from 1 April 2024 and accordingly would apply in relation to AY 2024-25 and thereafter.

Special provision for computing profits and gains in connection with the business of exploration, etc., of mineral oils.

[Section 44BB]

 

Special provision for computing profits and gains of foreign companies engaged in the business of civil construction, etc., in certain turnkey power projects

[Section 44BBB]

 

– Section 44BB and Section 44BBB pertain to presumptive taxation for specific businesses. These sections provide that an assessee may claim lower profits and gains than the profits and gains specified if sufficient books of accounts are maintained and an audit report as required under Section 44AB is maintained.

– The above sections are proposed to be amended to insert new sub-section to provide that where an assessee declares profits and gains of business for any previous year in accordance with the provisions of presumptive taxation, no set-off of unabsorbed depreciation and brought forward loss shall be allowed to the assessee for such previous year.

– The amendment will take effect from 1 April 2024 and accordingly would apply in relation to AY 2024-25 and thereafter.

 

VTPA Comments – The proposed amendment has been introduced as the government believed that assessees should not take advantage of presumptive rates of tax and set-off of carry forward of business loss and unabsorbed depreciation at the same time.

– For example, losses are carried forward as per actual book profits whereas profits are restricted to presumptive rates and brought forward losses are set off.

Capital Gains

Rationalization of provisions relating to Joint Development Agreement

[Section 45(5A)]

– Section 45(5A) provides for chargeability of capital gains arising to an assessee (Individual and HUF) on the transfer of a capital asset being land or building or both, under a Joint Development agreement (JDA), the capital gains shall be chargeable to income-tax as income of the previous year in which the certificate of completion for the whole or part of the project is issued by the competent authority.

– For computing capital gains, full value of consideration includes the stamp duty value increased by the consideration received in cash.

– As per the proposed amendment, the full value of consideration for the purpose of computation of capital gains on JDA would include “any consideration paid by way of cheque, draft, or any other mode”.

– The amendment will take effect from 1 April 2024 and accordingly would apply in relation to AY 2024-25 and thereafter.

VTPA Comments – As the section was not clear whether a consideration in a mode other than cash would be included in the total consideration, taxpayers would often exclude considerations received in electronic modes, cheque, etc.

– Section 194-IC, on the other hand clearly states that consideration received in modes other than cash shall also be included and therefore, to align the two sections, this amendment has been introduced.

 

Transactions not regarded as transfer

 

[Section 47(viid)]

 

Cost with reference to certain modes of acquisition

 

[Section 49(10)]

– Section 47 has been amended to exclude the conversion of physical form of gold into Electronic Gold Receipt (EGR) and vice versa by a SEBI registered Vault Manager from the purview of ‘transfer’ for the purposes of Capital Gains.

– A new sub-section 10 has been inserted to Section 49, to clarify that the cost of acquisition is the cost of gold in the hands of the person, in whose name EGR is issued by a Vault Manager. Likewise, the cost of acquisition of gold released against EGR shall be deemed to be the cost of the EGR in the hands of such person.

– The period of holding for the purpose of capital gain shall include the period for which the Gold was held by the assessee prior to conversion into the EGR and vice versa.

– The amendment will take effect from 1 April 2024 and accordingly would apply in relation to AY 2024-25 and thereafter.

Mode of computation

 

[Section 48]

 

– Section 48 provides for mode of computation income chargeable under the head “Capital gains”. Section 24(b) and Section 80EE of the Act provide for deduction of interest payable on borrowed capital for acquiring, renewing or reconstructing a property.

– A proviso is proposed to be inserted to Section 48(ii) to clarify that the cost of acquisition or the cost of improvement of an asset shall not include the amount of interest claimed under Section 24 while computing the income from House Property or Section 80EE of while computing the taxable income.

– The amendment will take effect from 1 April 2024 and accordingly would apply in relation to AY 2024-25 and thereafter.

Special provision for taxation of Market Linked Debentures

[Insertion of new Section 50AA]

 

– Section 50AA is newly added in the Act to treat the full value of the consideration received or accruing as a result of the transfer or redemption or maturity of “Market Linked Debentures” as capital gains arising from the transfer of a short term capital asset.

The said consideration will be reduced by:

– the cost of acquisition of the debenture and

– the expenditure incurred wholly or exclusively in connection with transfer or redemption of such debenture

– However, any securities transaction tax paid will not be allowed as a deduction.

– The term ‘Market linked Debenture’ is defined to mean a security by whatever name called, which has an underlying principal component in the form of a debt security and where the returns are linked to market returns on other underlying securities or indices and includes any security classified or regulated as a Market Linked Debenture by the Securities and Exchange Board of India.

– The amendment will take effect from 1 April 2024 and apply to AY 2024-25 and subsequent AYs.

VTPA Comments – The deeming fiction created by Section 50AA of treating such gains as deemed short term capital gains will lead to litigation regarding the rate of tax to be applied and availability of any exemption under Chapter IV, Part E of the Act.
Profit on sale of property used for residence

[Amendment of section 54]

Gain on transfer of certain capital assets not to be charged in case of investment in residential house 

[Section 54F]

– Section 54(1) allows deduction on the capital gains arising from the transfer of long-term capital asset, being buildings or lands appurtenant thereto, and being a residential house, if an assessee, within a period of one year before or two years after the date on which the transfer took place, purchased one residential property in India, or within a period of three years after that date, constructed one residential property in India.

– Section 54F(1) allows deduction on the capital gains arising from the transfer of long-term capital asset, not being a residential house, if an assessee, within a period of one year before or two years after the date on which the transfer took place purchased one residential property in India, or within a period of three years after that date constructed one residential property in India

– It is proposed to insert a third proviso in Section 54(1) and second proviso in Section 54F(1); so as to provide that where the cost of new asset exceeds ten crore rupees, the amount exceeding ten crore rupees shall not be taken into account for the purposes of that sub-section.

– It is further proposed to insert a proviso to provide that the amount of capital gain under Section 54(1) / net consideration under Section 54F(1) in excess of rupees ten crores will not be taken into account, for the purposes of that sub-section.

– The amendment will take effect from 1 April 2024 and apply to AY 2024-25 and subsequent AYs.

VTPA Comments – The limit of INR ten crores which has been fixed for investment into a residential property may need to be looked into considering the inflation in prices of residential property, especially in metropolitan cities.
Defining the meaning of “adjusted”, “cost of improvement” and “cost of acquisition”

[Section 55]

 

 

– The existing provisions of Section 55 defines the expressions ‘cost of any improvement’ and ‘cost of acquisition’ for the purposes of computing capital gains.

– However, there are certain assets like intangible assets or any other right for which no consideration has been paid for acquisition, and the transfer of which may result in generation of any income or could be converted into any profit or gain, but the cost of acquisition for such assets is not clearly defined as ‘nil’ in the present provision.

– It is proposed to amend the said section to insert expression “or intangible asset or any other right” in the definitions of “cost of any improvement” and “cost of acquisition”.

– The amendment will take effect from 1 April 2024 and apply to AY 2024-25 and subsequent AYs.

Income From Other Sources

Income from other sources 

[Section 56]

 

 

 

– Section 56(2)(viib) of the Act, inter-alia, provides that where a company, not being a company in which the public are substantially interested, receives, in any previous year, from any person being a resident, any consideration for issue of shares that exceeds the face value of such shares, the aggregate consideration received for such shares as exceeds the fair market value of the shares shall be chargeable to income-tax under the head ‘Income from other sources’.

– The existing provisions of Section 56(2)(viib) of the Act were not applicable to premium received from non-residents. It is proposed to extend the applicability of the provisions of Section 56(2)(viib) to investments received from non-residents as well.

– The amendment will take effect from 1 April 2024 and apply to AY 2024-25 and subsequent AYs.

Income from other sources

[Section 56]

Tax on income of unit holder and business trust.

[Section 115UA]

 

 

– Section 56(2)(xii) is proposed to be amended to provide that income chargeable to tax under this head shall also include any sum, received by a unit holder from a business trust, which is other than interest, dividend and lease rental and also not chargeable to tax under Section 115UA(2).

– It is further provided that where the sum received by a unit holder from a business trust is for redemption of unit or units held by him, the sum received shall be reduced by the cost of acquisition of the unit or units to the extent such cost does not exceed the sum received.

– Section 115UA is also proposed to be amended to clarify that the provisions of Section 115UA(1), (2), and (3) shall not apply in respect of any sum, as referred to in Section 56(2)(xii), received by a unit holder from a business trust.

– The amendment will take effect from 1 April 2024 and apply to AY 2024-25 and subsequent AYs.

VTPA Comments – Distributions such as repayment of debt by business trusts becomes non taxable for unit holders and thus this amendment is introduced to provide that such distribution will be taxable in the hands of the unit holders.

 

Income from other sources

[Section 56]

 

 

 

– Section 10(10D) is amended not to exempt monies received including the bonus under a life insurance policy where the premium paid in aggregate in a year exceeds INR 5,00,000.

– Deduction shall be allowed for premium paid, if such premium has not been claimed as deduction earlier. This provision will be applicable policies issued on or after 1 April 2023.

– Section 56(2)(xiii) is amended to provide that where any sum is received (including the amount allocated by way of bonus), under a life insurance policy, which is not exempt under Section 10(10D), the sum so received exceeds the aggregate of the premium paid during the term of such life insurance policy shall be chargeable to income-tax under the head “Income from other sources”.

– The amendment will take effect from 1 April 2024 and apply to AY 2024-25 and subsequent AYs.

VTPA Comments – The life insurance policies serve dual purpose of covering life and providing safe income to people in their retirement life. Thus, this amendment would affect retired people who were dependent on such safe and secure income in their old age, and the yield on such policies were also low.

– This amendment may not be in good spirit, especially when honest taxpayers plan for their old age, as the government collects taxes but does not provide any safety net for retired taxpayers.

Set Off and Carry Forward Of Losses

Provisions relating to carry forward and set off of accumulated loss and unabsorbed depreciation allowance in amalgamation or demerger, etc

[Section 72A]

Carry forward and set off of accumulated loss and unabsorbed depreciation allowance in scheme of amalgamation in certain case

[Section 72AA]

 

– The provisions of Section 72A provide for carry forward and set-off of accumulated loss and unabsorbed depreciation allowance in case of amalgamation or demerger.

– This section also provides for carry forward and set-off of loss and unabsorbed depreciation in the case of strategic disinvestment.

– The definition of strategic disinvestment is proposed to be amended. Section 72A(1)(d) enables carry forward and set-off of loss and unabsorbed depreciation in case of amalgamation under strategic disinvestment of shareholding by the Central Government or any State Government in a public sector company which results in reduction of its shareholding below fifty-one per cent along with transfer of control to the buyer.

– To facilitate further strategic disinvestment, it is proposed to amend the definition of ‘strategic disinvestment’ in Section 72A of the Act so as to provide that strategic disinvestment shall mean sale of shareholding by the Central Government, the State Government or Public Sector Company in a public sector company or a company which results in:

o reduction of its shareholding below fifty-one per cent, and

o transfer of control to the buyer.

– The first condition shall apply in case the shareholding was above fifty one percent before such strategic disinvestment. The requirement of transfer of control may be carried out by either the Central Government or State Government or Public Sector Company or any two of them or all of them.

– Section 72AA is also amended to allow carry forward of accumulated losses and unabsorbed depreciation allowance in the case of amalgamation of one or more banking company with any other banking institution or a company subsequent to a strategic disinvestment, if such amalgamation takes place within 5 years of strategic disinvestment.

– The amendment will take effect from 1 April 2023 and apply to AY 2023-24 and subsequent AYs.

Deductions

Special provision in respect of specified business [Start-ups] [Section 80-IAC]

Carrying forward and setting off of losses in cases of companies, other than the companies in which the public is substantially interested [Section 79]

– Section 80-IAC of the Act provides for a deduction of 100% of the profits and gains derived from an eligible business by an eligible start-up having turnover not exceeding INR 100 crores, for 3 consecutive assessment years out of 10 years, at the option of the assessee, subject to certain conditions, for an eligible start-up incorporated on or after the 1 April 2016 but before the 1 April 2023.

– It is now proposed to extend the period of incorporation of such eligible start-ups till 1 April 2024.

– Further, proviso to Section 79(1) of the Act is proposed to be amended to enable the eligible start-ups to carry forward its losses under the proviso, if loss has been incurred during the period of ten years instead of seven years beginning from the year in which the company was incorporated. The said amendment aligns with the period of ten years available to an eligible start-up under Section 80-IAC(2) of the Act.

– The amendment will take effect from 1 April 2023 and apply to AY 2023-24 and subsequent AYs.

Concessional Tax Regime

Tax on income of certain new manufacturing co-operative societies [Insertion of new Section 115BAE]

 

Definition of ‘specified domestic transaction’ [Section 92(BA)(vb)]

 

– In line with Section 115BAB introduced by the Taxation Laws (Amendment) Act, 2019, a new Section 115BAE is proposed to be introduced that prescribes that the tax rate of manufacturing co-operative societies shall at its option, be computed at the rate of 15%. The concessional rate of tax of 15% is subject to fulfilment of certain conditions similar to Section 115BAB.

– The co-operative society is formed or set up on or after 1 April 2023 and has commenced manufacturing on or before 31 March 2025.

– Section 92BA has been made applicable to transactions between persons referred to in Section 115BAE(4). The proposed amendment has been brought about by introducing a new sub-section (vb) to Section 92BA.

– The proposed amendment is as under:

“any business transacted between the assessee and other person referred to in sub-section (4) of section 115BAE.”

– The amendment will take effect from 1 April 2024 and apply to AY 2024-25 and subsequent AYs.

VTPA Comments – Lower rate of tax of 15% was available to domestic manufacturing companies. In order to encourage manufacturing industry, the same concessional rates have now also been extended to co-operative societies.

Agnipath Scheme, 2022

Deduction in respect of contribution to Agnipath Scheme [Section 10(12C)]

Definition of salary [Section 80CCH)]

[Section 17(1)(ix)]

– This scheme has been introduced by the Ministry of Defence (MoD) which provides for enrollment of Agniveers in Indian Armed Forces.

– A non-lapsable corpus fund under the aegis of MoD for the same has been proposed. This fund will consist of contributions from both the Agniveer as well as the Government.

– 30% of monthly package has to be contributed by the Agniveer. A matching amount will also be contributed by the Government. Interest will be paid on the amount standing in the fund.

– The entire accumulated amount will be paid to the Agniveer after the engagement period of four years.

– Following amendments are proposed in lieu of the scheme and corpus fund:

  • Section 10(12C) is amended to provide that the amount received from the Corpus Fund by the Agniveer or the nominee will be exempt from tax.
  • A new Section 80CCH is inserted to provide that an assessee enrolled and subscribed in the said scheme and corpus fund on or after 1 November 2022, shall be allowed a deduction of the whole amount deposited by the Agniveer and the Central Government.
  • Section 17(1) which defines ‘salary’ will now include the contribution made by the Central Government to the Agniveer Corpus Fund account of an individual enrolled in the Agnipath Scheme referred to in Section 80CCH.
  • Similarly, an individual enrolled in the Agnipath Scheme and subscribing to the Agniveer Corpus Fund shall get a deduction of the government contribution to such fund in the new tax regime of Section 115BAC.

– The amendment will take effect from 1 April 2023 and apply to AY 2023-24 and subsequent AYs.

Special Provisions Relating to Avoidance Of Tax

Maintenance, keeping and furnishing of information and document by certain persons 

[Section 92D]

– It is proposed to provide that a period of 10 days will be available to the assessee to furnish information or documents, from the date of receipt of a notice issued in this regard, either by the AO or CIT(A).

– The AO or the CIT(A) may, on an application made by such person who has entered into an international transaction or specified domestic transaction, extend the period of ten days by a further period not exceeding thirty days.

– The amendment will take effect from 1 April 2023 and apply to AY 2023-24 and subsequent AYs.

VTPA Comments – The amendment restricts the time given to an assessee to file his reply to certain queries raised by the TPO in the course of TP proceedings. The amendment increases the burden of the taxpayer as he has to comply with a plethora of regulatory timelines.

Other Amendments

Rebate to be allowed in computing income-tax [Section 87A]

 

 

– Section 87A provides for a rebate of 100% to an individual having total income not exceeding INR 5 lakh.

– It is proposed to provide that an individual who is chargeable to tax under the New Regime under Section 115BAC(1A) will now be entitled to a rebate of 100% for income not exceeding INR 7 lakhs or an amount of INR twenty five thousand, whichever is less.

– The amendment will take effect from 1 April 2024 and accordingly would apply in relation to AY 2024-25 and thereafter.

Tax on winnings from online games [Insertion of Section 115BBJ] – A new Section 115BBJ has been inserted to provide that any income by way of winning from online game shall be taxed at a rate of 30%.

– The tax will be calculated on the amount of income-tax on net winnings from online games during the previous year, computed in the prescribed manner, and the amount of income-tax with which the assessee would have been chargeable if his total income is reduced by the net winnings.

– The terms “computer resources”, “internet’ and “online games” have been defined in the proposed Section 115BBJ.

– Consequently, income from winning in online games has been excluded from the ambit of Section 115BB.

– The amendment will take effect from 1 April 2024 and apply to AY 2024-25 and subsequent AYs.

Relief to sugar co-operatives [Section 155]

 

 

– Section 155 is proposed to be amended to provide that in case of a sugar mill cooperative, where any deduction in respect of any expenditure incurred for the purchase of sugarcane has been claimed by an assessee and such deduction has been disallowed wholly or partly for AYs prior to 2016-17.

– The AO shall, on the basis of an application made by such assessee, recompute the total income of such assessee for such previous year.

– The AO shall allow such deduction to the extent such expenditure is incurred at a price which is equal to or less than the price fixed or approved by the Government for that previous year.

– The amendment will take effect from 1 April 2023 and accordingly would apply in relation to AY 2023-24 and thereafter.

Effect of order of tribunal or court in respect of business reorganization [Substitution of new section for Section 170A] – It is proposed to substitute the section to provide that where prior to the date of order of a High Court or tribunal or an Adjudicating Authority, a return of income has been furnished by an entity to which the order of business reorganization applies under Section 139, the successor shall furnish a modified return, within six months from the end of the month in which such order was issued in the form and manner, as may be prescribed, in accordance with such order. The same would also enable modification of the returns filed by the predecessor wherever required.

– It is also proposed to provide the procedure to be followed by the AO after the modified return is furnished by the successor. It also provides that where the assessment or reassessment proceedings for an AY relevant to a previous year to which the order in respect of the business reorganization applies:

  • have been completed on date of modified return – The AO shall pass order modifying the total income basis the modified return.
  • are pending as on the date of the modified return – The AO shall pass order considering the modified return.

– It is also proposed to provide that all other provisions of the Income-tax Act, shall apply to the assessment or reassessment made under the section unless otherwise provided and in such cases, tax shall be chargeable at the applicable rate for the AY.

– The terms ‘business reorganization’ and ‘successor’ are also proposed to be defined under the explanation to the section. The amendments are proposed to come into effect from 1 April 2023, and accordingly would apply in relation to AY 2023-24 and thereafter.

VTPA Comments – The substituted provision will help in streamlining the process to be followed by the successor entity in case of business reorganisations, etc. resulting from IBC Code, etc.
Set off and withholding of refunds in certain cases

 

[Amendment of Sections 241A, 244A & substitution of new Section for Section 245]

 

– Section 241A provides that where a refund becomes due to an assessee under Section 143(1) and notice for assessment is issued to him under Section 143(2), the AO may withhold such refund till the date of such assessment being made, if he is of the opinion that the grant of refund is likely to adversely affect the revenue. Such withholding can be done after recording the reasons for doing so and with the prior approval of the Principal Commissioner or Commissioner, and applicable to AYs on or after 2017-18.

– Section 245 deals with set-off of refunds against tax remaining payable. It provides that where refund is found to be due to any person under any provisions of the Act, the AO or other income-tax authorities mentioned, may, in lieu of payment, set off part or whole of the refund against any sum remaining payable by such person, after giving him an intimation in writing regarding the proposed action.

– It is proposed to integrate the two sections by substituting Section 245, so as to provide that:

  • where under any of the provisions of the Act, a refund is due to any person,
  • the AO or Commissioner or Principal Commissioner or Chief Commissioner or Principal Chief Commissioner, may, in lieu of payment of the refund,
  • set off the amount to be refunded or any part of that amount, against any sum remaining payable under this Act by the person to whom the refund is due,
  • after giving an intimation in writing to such person of the action proposed to be taken under this section.

– It is also proposed to provide that where a part of the refund has been set off under sub-section (1) or where no amount is set off, and refund becomes due to a person, then, the AO, having regard to the fact that proceedings of assessment or reassessment are pending in such case and grant of refund is likely to adversely affect the revenue, and for reasons to be recorded in writing and with the previous approval of the Principal Commissioner or Commissioner, may withhold the refund till the date on which such assessment or reassessment is made.

– It is proposed to amend Section 241A to make the provisions of the section inapplicable from 1 April 2023.

Set off and withholding of refunds in certain cases

[Amendment of Sections 241A, 244A & substitution of new Section for Section 245]

 

– Further, as the amendments proposed under Section 245 would have an impact on cases referred to in Section 244A(1A), i.e., where refund due to the assessee is required to be withheld by the AO under sub-section (2) of the proposed section till the date of the making assessment or reassessment, it is proposed to amend Section 244A(1A).

– A proviso is inserted in Section 244A(1A), such that in case of an assessee where proceedings for assessment or reassessment are pending, the additional interest shall not be payable to the assessee under this sub-section, for the period beginning from the date on which such refund is withheld by the AO, in accordance with and subject to provisions of Section 245(2), till the date on which the assessment or reassessment pending in such case, is made.

– However, the proposed amendment shall not impact the existing position with regard to all other types of interest, except additional interest under Section 244A(1A), payable to the assessee as required under the Act.

– The amendment is proposed to come into effect from 1 April 2023, and accordingly would apply in relation to AY 2023-24 and thereafter.

Amendment of section 245D 

[Procedure on receipt of an application under section 245C]

– Section 245D (9) of the Act, clause (iv) is proposed to be substituted to extend the time limit for amending any order or filing of rectification under sub-section (6B) to 30 September 2023.

– The amendment is proposed to take effect retrospectively from the 1 February 2021.

Amendment of Section 269SS and 269T

 

 

– Section 269SS of the Act provides that no person shall take from any person any loan or deposit otherwise than by an account payee cheque or account payee bank draft or online transfer through a bank account, if the amount of such loan or deposit is Rs. 20,000 or more.

– Similarly, Section 269T provides that no loan or deposit shall be repaid otherwise than by an account payee cheque or account payee bank draft or online transfer through a bank account, if the amount of such loan or deposit is Rs. 20,000 or more. Certain exceptions have, however, been specified in the provisions.

– Section 269SS and Section 269T of the Act are proposed to be amended to raise the limit of INR 20,000 to INR 200,000 for Primary Agricultural Credit Societies and Primary Co-Operative Agricultural and Rural Development Bank.

– The amendments are proposed to come into effect from 1 April 2023, and accordingly would apply in relation to AY 2023-24 and thereafter.

Various schemes have been introduced to digitize the processes under the Act.

Given below are the proposed time limits for incorporating amendments for such schemes in the Act:

Section Scheme Time Limit
135A e-Verification Scheme, 2021 31 March 2022
245MA e-Dispute Resolution Scheme, 2022 31 March 2023
245R e-advance rulings Scheme, 2022 31 March 2023
250 Faceless Appeal Scheme, 2021 31 March 2022
274 Faceless Penalty Scheme, 2021 31 March 2022

Administration And Assessments

Search and seizure

[Section 132]

– Section 132 has been amended to provide that during the course of search, the authorised officer, may requisition the services of any other person or entity, as approved, to assist for the purposes of the search, in accordance with the procedure laid down by the Board.

– Similarly, during and post search enquiries, the authorised officer may also make reference to any person or entity or any valuer registered by or under any law, who shall estimate the fair market value of the property in the manner prescribed and submit a report of the estimate to the authorised officer or the AO within sixty days from the receipt of such reference.

– The amendment is proposed to come into effect from 1 April 2023, and accordingly would apply in relation to AY 2023-24 and thereafter.

Tax on updated return

[Section 140B]

– Section 140B provides for tax on updated return filed under Section 139(8A).

– This section has been amended to clarify that the interest to be computed under Section 234B shall be based on the on an amount equal to the assessed tax as reduced by the amount of advance tax, the credit for which has been claimed in the earlier return, if any.

– This is only a consequential amendment.

– This amendment is proposed to come into effect from 1 April 2022.

Inquiry before assessment

[Section 142]

– Section 142 has been amended to ensure that the inventory is valued in accordance with various provisions of law.

– The AO can direct the assessee to get inventory valued by a cost accountant as nominated by the higher authorities.

– This is similar to the provision of enabling the AO to get the accounts audited by a Chartered Accountant as provided in Section 142(2A)(i).

– Consequently, Section 153 is also amended to exclude the period for inventory valuation through the cost accountant for the purposes of computation of time limitation.

– Consequentially, changes have been proposed in Section 295 of the Act.

– The amendment is proposed to come into effect from 1 April 2023, and accordingly would apply in relation to AY 2023-24 and thereafter.

Issue of notice where income has escaped assessment. [Section 148]

 

Time limit for notice [Section 149]

 

Sanction for issue of Notice [Section 151]

 

– Section 148 is amended to provide that a return in response to a notice under Section 148 of the Act shall be furnished within three months from the end of the month in which such notice is issued, or within such further time as may be allowed by the AO.

– Further, any return filed beyond the time limit shall not be considered a return filed under Section 139.

– In Section 149, which provides for time limit of issue of notice under Section 148, has been amended to provide that in case of a

o Search initiated under Section 132

o Search for which last of authorisations is executed

o Requisition is made under Section 132A

– After 15 March of any FY, a period of 15 days shall be excluded for the purpose of computing the limitation of this section.

– Section 151 has also been amended to provide that while computing the period of three years for the purposes of determining the specified authority the period which has been excluded or extended as per the provisos in Section 149 of the Act from the time limit for issuance of notice under Section 148 of the Act shall be taken into account.

– The amendment is proposed to come into effect from 1 April 2023, and accordingly would apply in relation to AY 2023-24 and thereafter.

Time limit for completion of assessment, reassessment and recomputation [Section 153] – Section 153 is proposed to be amended for various time limits.

– For assessment year commencing on 1st day of April, 2021, the time limit for completion of assessment shall be nine months.

– For assessment year commencing on 1st day of April, 2022, the time limit for completion of assessment shall be twelve months.

– In the case of an updated return under Section 139(8A), the time limit for completion of assessments have been increased to 12 months.

– Notwithstanding Section 153(1), (1A), (2), and (3), a new sub-section 3A is inserted to provide that in case where search is initiated under Section 132 or such requisition is made under Section 132A wherein certain conditions are fulfilled, time limit for completion of pending assessment or reassessment in such cases is extended by another 12 months.

– The amendment is proposed to come into effect from 1 April 2023, and accordingly would apply in relation to AY 2023-24 and thereafter.

Introduction of the authority of Joint Commissioner (Appeals)

[Amendment to Sections 246, 249, etc…]

 

 

– It has been noted that Commissioner (Appeals) are currently overburdened due to the huge number of appeals and the pendency being carried forward every year, accordingly, a new authority for appeals is being proposed to be created by way of Joint Commissioner (Appeals) to handle certain class of cases involving small amount of disputed demand.

– Such authority has all powers, responsibilities and accountability similar to that of Commissioner (Appeals) with respect to the procedure for disposal of appeals.

– Following orders of an Assessing Officer (below the rank of Joint Commissioner) may appeal to the Joint Commissioner (Appeals) against—

o an order being an intimation under Section 143(1), where the assessee objects to the making of adjustments, or any order of assessment under Section 143(3) of Section 143 or section 144, where the assessee objects to the amount of income assessed, or to the amount of tax determined, or to the amount of loss computed, or to the status under which he is assessed;

o an order of assessment, reassessment or recomputation under Section 147;

o an order being an intimation under Section 200A(1);

o an order under Section 201;

o an order being an intimation under Section 206C(6A);

o an order under Section 206CB(1);

o an order imposing a penalty under Chapter XXI; and

o an order under Section 154 or Section 155 amending any of the orders mentioned in (i) to (vii) above

– It is proposed that where any appeal is pending before the Commissioner (Appeals), the Board or an income-tax authority so authorised by the Board in this regard, may transfer such appeal to the Joint Commissioner (Appeals).

Introduction of the authority of Joint Commissioner (Appeals)

[Amendment to Sections 246, 249, etc…]

 

– The appellant shall be provided an opportunity of being reheard.

– For the purposes of disposal of appeal by the Joint Commissioner (Appeals), the Central Government may make a Scheme, by notification in the Official Gazette.

– The Board may specify that the provisions of 246(1) shall not apply to any case or any class of cases.

– It is also proposed to amend Section 2 by inserting a definition for Joint Commissioner (Appeals) and to amend Section 116 to make Joint Commissioner (Appeals) an income-tax authority.

– Consequential amendments are also proposed to be made with respect to form of appeal and limitation, procedure in appeal, powers of Joint Commissioner (Appeals).

– It is also proposed that an order passed by a Joint Commissioner (Appeals) under Section 154, Section 250, Section 270A, Section 271, Section 271A, Section 271AAC, Section 271AAD or Section 271J shall be appealable before the Appellate Tribunal.

– It is proposed that Principal Commissioner/ Commissioner cannot revise the orders passed by Joint Commissioner (Appeals).

– It is also proposed that the amendment of assessment shall be made as per the order of the Joint Commissioner (Appeals).

– The Joint Commissioner is also empowered to direct that any person who has under-reported his income shall be liable to pay a penalty in addition to tax, if any, on the under-reported income.

– The amendments are proposed to come into effect from 1 April 2023, and accordingly would apply in relation to AY 2023-24 and thereafter.

VTPA Comments – This would probably help in quicker disposal of appeals at first appellate authority level.

Penalty & Prosecution

Penalty for failure to deduct tax at source

[Amendment of Section 271C]

 

 

– Section 271C of the Act deals with penalty for failure to deduct TDS as required by or under Chapter XVII-B or for failure to pay tax as required under Section 115-O(2) or Proviso to Section 194B.

– The scope of Section 271C(1)(b) is proposed to be expanded to cover within its ambit, failure to remit TDS under Section 194R (benefit or perquisites relating to business or profession), Section 194S (transfer of virtual digital assets) and Section 194BA of the Act (TDS on net winnings from online gaming which is proposed to be inserted).

– Further, drafting changes are also proposed to align the language with the main provisions.

– This amendment is proposed to be made effective from 1 April 2023, and accordingly would apply in relation to AY 2023-24 and thereafter, in the case of Section 194R and Section 194S and from 1 July 2023, in the case of Section 194BA.

Penalty for furnishing inaccurate statement of financial transaction or reportable account

[Amendment of Section 271FAA]

 

 

– Section 271FAA of the Act deals with the penalty for furnishing inaccurate statement of financial transaction or reportable account.

– Section 271FAA is proposed to be renumbered as sub-section (1) and amendment has been made to clarify that the income-tax authority as prescribed under sub-section (1) of Section 285BA shall be empowered to levy penalty of INR 50,000 under Section 271FAA.

– Further, to penalize false self-certification, sub-section (2) is proposed to be inserted which states that a penalty of INR 5,000 shall be levied on the prescribed reporting financial institution for every inaccurate reportable account due to false or inaccurate information submitted by the account holder.

– Further, the reporting financial institution may recover the amount so paid on behalf of the account holder or retain out of any moneys that may be in its possession or may come to it from every such reportable account holder.

– This amendment is proposed to be made effective from 1 April 2023, and accordingly would apply in relation to AY 2023-24.

Failure to comply with the provisions of Section 178 (1) and (3)

[Amendment of Section 276A]

 

 

– Section 276A of the Act deals with imposition of penalty in case a liquidator fails to comply with provisions of Sections 178 (1) and (3) of the Act.

– A proviso is proposed to be inserted after the existing proviso to Section 276A, to provide that proceedings shall not be initiated under this section on or after 1 April 2023.

– This amendment is proposed to be made effective from 1 April 2023, and accordingly would apply in relation to AY 2023-24.

Failure to pay tax to the credit of Central Government under Chapter XII-D or XVII-B

[Amendment of Section 276B]

 

 

– Section 276B of the Act deals with imposition of penalty in case of failure to pay tax to the credit of Central Government under Chapter XII-D (levy of tax on distributed profits of Domestic Companies) and Chapter XVII-B (Deduction of tax at Source).

– Section 276B(a) is proposed to be amended to align the as per the amendments proposed to be made in Section 276(b).

– Section 276B(b) is proposed to be substituted to include failure to pay tax or to ensure payment of tax, as required by or under the first proviso Section 194R(1), the proviso to Section 194S(1) and Section 194BA(2) in addition to Section 115-O(2) and the proviso to Section 194B, for imposition of penalty under Section 276B of the Act.

– This amendment is proposed to be made effective from 1 April 2023, and accordingly would apply in relation to AY 2023-24 and thereafter, in all cases, except for failure to deduct tax under Section 194BA(2) which is proposed to be made effective from 1 July 2023.

Provisions Relating To Tax Deducted / Collected At Source

TDS on payment of accumulated balance due to an employee

[Amendment of section 192A]

– Section 192A provides for tax to be deducted at source at 10% on payment of taxable portion of lumpsum payment of provident fund due to an employee, except where amount or aggregate amount of payment is less than INR 50,000.

– It is proposed to omit the second proviso to the section which provides that any person entitled to receive any amount on which tax is deductible under the section shall furnish his PAN to the person responsible for deducting tax, failing which tax shall be deducted at maximum marginal rate.

– The amendments are proposed to come into effect from 1 April 2023, and accordingly would apply in relation to AY 2023-24 and thereafter.

VTPA Comments – The second proviso is proposed to be omitted so that in case of failure to furnish PAN by the person to whom the payment of accumulated balance is due, tax will be deducted at 20% as is done in other non-PAN cases according to Section 206AA.
Removal of exemption from TDS on payment of interest on listed debentures to a resident

[Amendment of section 193]

– Section 193 provides for TDS with respect to interest payment on certain securities.

– It is proposed to omit clause (ix) of the proviso to the section which provides that no tax to be deducted on interest payable on security, being in dematerialised form and listed, issued by a company.

– The amendment is proposed to come into effect from 1 April 2023, and accordingly would apply in relation to AY 2023-24 and thereafter.

TDS and taxability on winnings from lottery or crossword puzzle and on winnings from horse race

[Amendment of section 194B & 194BB]

– Section 194B provides for deduction of tax, at the time of payment and at the rates in force, by person responsible for payment to any person income by way of winnings from lottery or crossword puzzle or card game and other game of any sort exceeding INR 10,000.

– It is proposed to amend the section to include winnings from gambling or betting of any form or nature whatsoever within its scope.

– Section 194BB relates to similar provisions for deduction of tax at source for horse racing in any race course or for arranging for wagering or betting in any race course.

– It is proposed to amend Sections 194B and 194BB to provide for deduction of tax on the amount or the aggregate of amounts during the financial year that exceeds INR 10,000. The same is proposed to be amended to eliminate cases where tax deduction would be avoiding by splitting a winning into multiple transactions each below Rs 10,000.

– The above amendments are proposed to come into effect from 1 April 2023, and accordingly would apply in relation to AY 2023-24 and thereafter.

– It is also proposed to insert another proviso to Section 194B to exclude online games from the purview of the section from 1 July 2023 since a new Section 194BA is proposed to be introduced.

– An explanation is proposed to be inserted to provide that the meaning of the term ‘online game’ shall be as per explanation to proposed Section 115BBJ(iii).

– The above amendments are proposed to come into effect from 1 July 2023, and accordingly would apply thereafter.

TDS and taxability on winnings from online games

[Insertion of new section 194BA]

– A new Section 194BA relating to TDS on winnings from online games is proposed to be introduced to provide for deduction of tax on net winnings in user account at the end of the FY.

– In case of a withdrawal from user account during the FY, tax is to be deducted at the time of withdrawal on the net winnings comprised in such withdrawal as well as on the remaining amount of net winnings in user account at the end of the FY. The manner for computing net winnings is proposed to be provided by the rules.

– It is proposed to provide that where net winnings are wholly in kind or partly in cash and partly in kind but the part in cash is insufficient to meet TDS liability for whole of the net winnings, the person responsible for payment shall ensure that tax is paid for the net winnings, before releasing the winnings.

– It is proposed to provide that the Board may issue guidelines for the purpose of removing any difficulty arising in giving effect to the provisions of the section, with prior approval of the Central Government. Every such guideline issued by the Board shall be laid before each House of Parliament and shall be binding on the income-tax authorities and on the person responsible for deducting tax.

– An explanation is proposed to be inserted to provide that the meaning of the terms ‘computer resource’, ‘internet’ and ‘online game’ shall be as per Section 115BBJ and the terms ‘online gaming intermediary’, ‘user’ and ‘user account’ have been defined.

– The amendments are proposed to come into effect from 1 July 2023, and accordingly would apply thereafter.

Increasing threshold limit for co-operatives to withdraw cash without TDS

[Section 194N]

– Section 194N provides that a banking company or co-operative society engaged in carrying on the business of banking or post office, which is responsible for paying any sum to any person (‘recipient’) shall, at the time of payment of such sum in cash, deduct tax at 2% of such sum. The requirement to deduct tax applies only when the payment of amount or aggregate of amount in cash during the year exceeds INR 1 crore.

– It is proposed to insert a third proviso in the said section to provide that where the recipient is a co-operative society, the requirement to deduct tax would apply only when the payment of amount or aggregate of amount in cash during the year exceeds INR 3 crores.

– The amendment is proposed to come into effect from 1 April 2023, and accordingly would apply in relation to AY 2023-24 and thereafter.

Providing clarity on benefits and perquisites in cash or in kind

[Section 194R]

– Section 194R(1) provides that any person responsible for providing to a resident, any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession, by such resident, shall, before providing such benefit or perquisite, as the case may be, to such resident, ensure that tax has been deducted in respect of such benefit or perquisite at 10% of the value or aggregate of value of such benefit or perquisite.

– It is proposed to insert a new Explanation 2 to the section so as to clarify that the provisions of Section 194R(1) shall also apply to any benefit or perquisite, whether in cash or in kind or partly in cash and partly in kind.

– The amendment is proposed to come into effect from 1 April 2023, and accordingly would apply in relation to AY 2023-24 and thereafter.

Tax treaty relief at the time of TDS u/s 196A

 

[Amendment of section 196A]

– Section 196A relates to income in respect of units of non-residents and Section 196A(1) provides for TDS on payment of any income to a non-resident, not being a company, or to a foreign company in respect of units of a Mutual Fund specified under Section 10(23D) or from the specified company referred to in the Explanation to section 10(35) at the rate of 20%.

– It is proposed to insert a proviso to the Section 196A(1) so as to provide that where an agreement referred to in Section 90(1) or Section 90A(1) applies to the payee and if the payee has furnished a certificate referred to in Section 90(4) or Section 90A(4), as the case may be, then, income-tax thereon shall be deducted at the rate of 20% or at the rate or rates of income-tax provided in such agreement for such income, whichever is lower.

– The amendment is proposed to come into effect from 1 April 2023, and accordingly would apply in relation to AY 2023-24 and thereafter.

VTPA Comment – The amendment gives sanctity to the various Double Taxation Avoidance Agreements signed by India.
Extending scope for deduction of tax at source to lower or nil rate

[Amendment of section 197]

 

– Section 197 relates to grant of a certificate of tax deduction at lower or nil rate. It provides for assessee to apply to the AO for TDS at zero rate or lower rate, if the tax is required to be deducted under Sections 192, 193, 194, 194A, 194C, 194D, 194G, 194H, 194-I, 194J, 194K, 194LA, 194LBB, 194LBC, 194M, 194-O and 195. If the AO is satisfied that the total income of the recipient justifies the deduction of income-tax at any lower rates or zero rate, he is required to give an appropriate certificate to the assessee.

– Section 194LBA provides that business trust shall deduct and deposit tax at the rate of 5% on interest income of non-resident unit holders. In some cases, rate of deduction may be required to be reduced due to some exemption, for example exemption under Section 10(23FE) allowed to notified Sovereign Wealth Funds and Pension Funds. However, since certificate for lower deduction under Section 194LBA cannot be obtained under Section 197, benefit of exemption is not available at the time of tax deduction.

– Hence, it is proposed to amend Section 197(1) to provide that the sums on which tax is required to be deducted under Section 194LBA shall also be eligible for certificate for deduction at lower rate.

– The amendment is proposed to come into effect from 1 April 2023, and accordingly would apply in relation to AY 2023-24 and thereafter.

Relief from special provision for higher rate of TDS/TCS for non-filers of income-tax returns

 

[Amendment of sections 206AB & 206CCA]

– Sections 206AB and 206CCA provide for special provision for higher TDS/ TCS for non-filers of income-tax returns. In these sections, the term “specified person” means a person who has not furnished the return of income for the assessment year relevant to the previous year immediately preceding the financial year in which tax is required to be deducted/ collected. The provisos to the sections exclude a non-resident from the definition of specified person, if the non-resident does not have a PE in India.

– It is proposed to amend the said provisos to exclude a person who is not required to furnish the return of income for the assessment year relevant to the said previous year and who is notified by the Central Government in the Official Gazette in this behalf.

– The amendment is proposed to come into effect from 1 April 2023, and accordingly would apply in relation to AY 2023-24 and thereafter.

Increasing rate of TCS of certain remittances

 

[Amendment of section 206C]

– Section 206C provides for TCS from profits and gains from business of trading in alcohol, liquor, forest produce, scrap etc. Section 206C(1G) provides for TCS on foreign remittance through the Liberalised Remittance Scheme and on sale of overseas tour program package.

– In order to increase TCS on certain foreign remittances and on sale of overseas tour packages, it is proposed to amend Section 206C(1G) to provide TCS rates on the amount or the aggregate of the amounts being remitted by the buyer in a financial year as follows:

Sr. No. Type of remittance Present Rate Proposed rate
1 For the purpose of any education, if the amount being remitted out is a loan obtained from any financial institution as defined in Section 80E 0.5% of amount or aggregate of amounts in excess of INR 7 lakh (No change)
2. For the purpose of education, other than Serial no 1. above or for the purpose of medical treatment 5% of amount or aggregate of amounts in excess of INR 7 lakh (No change)
3. Overseas tour program package 5% without any threshold limit 20% without any threshold limit
4. Other cases 5% of amount or aggregate of amounts in excess of INR 7 lakh 20% without any threshold limit

– The amendments are proposed to come into effect from 1 July 2023, and accordingly would apply thereafter.

VTPA Comments – All the above transactions are carried out through banking channels where the remitter would have given his KYC documents, hence, increasing the TCS rates on remittances, which are in essence the after tax savings of the citizen of India, is extremely harsh and questions the honesty of the citizens.

RATES OF TAX

1.1 For Individuals, Hindu Undivided Families, Association of Persons, Body of Individuals and Artificial judicial person

Existing Tax Rates**
Total Income (INR) Rate (%) @
0 – 2,50,000# Nil
2,50,001 – 5,00,000# 5
5,00,001 – 10,00,000 20
10,00,001 and above 30

@ Health and Education cess of 4% is leviable on the amount of income-tax and surcharge.

# The basic exemption limit is INR 250,000 in case of every individual below the age of 60 years, INR 300,000 in case of resident individuals of the age of 60 years or more, and INR 500,000 for ‘very senior citizen’ in case of resident individuals of age 80 years and above.

** Where total income does not exceed INR 5,0,000, the assessee shall be entitled to a credit on the income-tax payable, not exceeding of an amount equal to hundred percent of the Income-tax payable or INR 12,500, whichever is less.

The surcharge on income-tax, for Individuals, Hindu Undivided Families, Association of Persons, Body of Individuals and Artificial judicial person, are as follows:

Total Income (INR) Surcharge

(%)

5 million – 10 million 10
10 million – 20 million 15
20 million – 50 million 25
Above 50 million 37
  • The enhanced surcharge of 25% & 37%, as the case may be, is not levied, from income chargeable to tax under Sections 111A, 112Aand 115AD. Hence, the maximum rate of surcharge on tax payable on such incomes shall be 15%.

1.2 Changes in the new tax regime of taxation.

Tax on incomes of individuals and Hindu Undivided Family under Section 115BAC

  • In the case of Individuals / HUFs, subject to forgoing of certain exemptions and deductions except the following deductions:
  • Standard deduction to salaried taxpayer of INR 50,000
  • Deduction from income in nature of family pension (1/3rd of income or INR 15,000, whichever is less)
  • Amount paid or deposited in Agniveer Corpus Fund under newly proposed Section of 80CCH of the Act
  • and on satisfaction of certain conditions, the new concessional rates would be applicable as shown in the below table:
Total Income (INR) Tax Rate in %
0 to 3,00,000 NIL
From 3,00,001 to 6,00,000 5
From 6,00,001 to 9,00,000 10
From 9,00,001 to 12,00,000 15
From 12,00,001 to 15,00,000 20
Above 15,00,000 30
  • Further maximum rate of surcharge is capped at 25% as against 37% in normal tax regime.
  • The applicable rates of education cess would be computed on the same basis as under normal rates of tax.
  • Where total income does not exceed INR 7,00,000, the assessee shall be entitled to a credit of an amount equal to hundred percent of the Income-tax payable under new regime.
  • Taxpayers having no business income will have option to opt for the old tax regime for every financial year.
  • Taxpayers having business income the option for shifting out of new tax regime shall be exercised only once and shall be valid for that financial year and all subsequent financial years. Once the option is exercised, such person shall be able to exercise the option of opting back to new regime only once.

Co-operative Societies

Taxable Income Tax rate
Upto INR 10,000 10%
INR 10,000 to 20,000 20%
Above INR 20,000 30%

Surcharge

7% of tax amount if income exceeds INR 1 crore but does not exceed INR 10 crore

12% of tax amount if income exceed INR 10 crores

Education cess at 4% on tax amount including surcharge

On satisfaction of certain conditions, a resident co-operative society shall have the option to pay tax at 22% as per Section 115BAD plus Surcharge at 10% on tax amount and education cess same as above.

1.3 Introduction of new Section 115BAE for new manufacturing cooperative societies

  • A new manufacturing co-operative society set up on or after 1 April 2023, which commences manufacturing or production on or before 31 March 2024 and does not avail any specified incentives or deductions may opt to pay tax at concessional rate of 15%.
  • Further the rate of surcharge would be levied at 10% on such tax.
  • Rate of education cess remains the same at 4% as in case of normal rate of tax.

There are no changes in the Income-tax rates for others in the Budget. Summary of the same is provided as under:

Description Existing Tax Rates (%)
Having Income up to INR 10 million Having Income from INR 10 million to 100 million Having Income more than INR 100 million
(Including Health and Education Cess @ 4%)
Regular tax as per Para E of the 1st Schedule to the Finance Act

(Turnover up to INR 4000 mn)

26.00 27.82* 29.12**
Regular tax as per Para E of the 1st Schedule to the Finance Act

(Turnover > INR 4000 mn and not covered below)

31.20 33.38* 34.94**
115BA 26.00 27.82* 29.12**
115BAA 25.17*** 25.17*** 25.17***
115BAB 17.16*** 17.16*** 17.16***
MAT@ 15.60 16.69* 17.47**
(of book profits) (of book profits)* (of book profits)**
Dividend Received from Foreign subsidiary company

(section 115BBD)

15.60 16.69* 17.47**
Regular tax (Foreign Company) 41.60 42.43$ 43.68#
Regular tax (Firm) 31.20 34.944**
Alternate Minimum Tax (AMT) 19.24 21.55**
Alternate Minimum Tax (AMT) (Co-operative societies) 15.60^ 17.47**

* Inclusive of surcharge @ of 7 %

** Inclusive of surcharge @ of 12 %

*** Inclusive of surcharge @ of 10 %

$ Inclusive of surcharge @ of 2 %

# Inclusive of surcharge @ of 5 %

@ MAT provisions would not be applicable for who has opted for special taxation regime under Section 115BAA & 115BAB

^ Sub-section (4) of section 115JC has been modified to reduce the AMT rate at which co-operative societies are liable to pay income-tax to 15%. Consequential amendment is also proposed in clause (b) of section 115JF in relation to the definition of ‘alternate minimum tax’

The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

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