Get the Scoop on Budget 2023 Changes to Income Tax

Introduction

So, the Union Budget for 2023 is out! As always, there’s been a lot of buzz about the various proposals and changes announced by the Finance Minister. You may be inclined to focus on the larger-ticket items, but you should be aware of some major changes in direct and indirect taxes which will have a direct impact on you.  Let’s take a closer look.

The emphasis is placed in this article on changes to income tax laws proposed in Finance Bill,2023.

Income Tax Rates

• Under the New Tax Regime i.e. Section 115BAC, the basic exemption limit of income tax has been increased from Rs.250000 to Rs. 300000. Tax rates are as follows in New Tax Regime:

• Extension of new tax regime option under Section 115BAC to Association of Persons other than cooperative society or body of individuals or artificial juridical person.
• Instead of having to fill out form 10IE before filing the return, the New Tax Regime is now the default option selected in the Income Tax Return (ITR). With the aforementioned change, assessees’ who choose the old tax system must now submit a prescribed form before filing their ITR for each assessment year.
• Taxpayers with business or professional income must submit the form before the ITR filing deadline, and once the option is used, it will be valid for subsequent assessment years.

Crux– The key is that taxpayers who have income from a business or profession must submit the required form both when choosing the new tax regime and when switching back to the previous tax regime. Other taxpayers have the option to select between the two tax structures each assessment year.

• ITRs filed without opting for any regime will be assessed as per New Tax Regime rates.
• The standard deduction benefit for salaried individuals or pensioners will be made available under the New Tax Regime starting in AY 2024–25 (i.e. FY 2023–2024) up to Rs. 50000/– under Section 16 of the Income Tax Act.
• Under the new tax system, the maximum surcharge rate was decreased from 37% to 25%. The Old and New Tax Surcharge Rates are listed below.

• Under the new regime (Section 115BAC), the rebate limit under Section 87A has increased from Rs.12500 to Rs.15000, or 100% of the income tax due on a total income not exceeding Rs.7 Lakhs.

Tax Benefits for Agniveers

Following are the sections that have been added or amended in the Income Tax Act to benefit Agniveers:

• In order to give Agniveers or nominees exemptions from receiving payments from Agniveer Corpus Funds, Section 10(12C) has been added.
• Section 80CCH has been inserted in the Income Tax Act to provide deductions to individuals who enrolled in the Agnipath Scheme 2022 (introduced on 1^st Nov 2022) of the whole amount deposited in Agniveer Corpus Fund on or after 1^st Nov 2022. The benefit of such a section is allowed under Section 115BAC.

These Agniveer-related amendments will become operative retroactively as of April 1, 2023, or AY 23–24.

House Property

Amendment to Section 48 (Capital Gain) to add a proviso after clause (ii) that states that the amount of interest claimed under Section 24 or Chapter VI does not count toward the cost of acquisition or the cost of the improvement. This idea is being put forth to stop the double deduction of interest on borrowed funds used to buy, renovate, or build a property.

These changes will be applied retroactively beginning on April 1, 2023, or AY 2023–2024.

Business Income

• The addition of Section 43B(h) clarifies that any amount due from the assessee to the MSME after the time period specified in Section 15 of the MSMED Act, 2006, i.e., within the 15-day time period or before the due date (which cannot exceed 45 days), shall only be permitted as a deduction on actual payment. On the other hand, it is also suggested that the proviso to Section 43B of the Act not apply to such payments. The financial position of the MSME will be strengthened by this excellent initiative.
• It is suggested to add a new section, Section 115BAB, that would offer a reduced tax rate of 15% in order to support a brand-new manufacturing cooperative society.
• By eliminating the requirement that activity in relation to preliminary expenses be carried out with the board’s approval, an amendment to Section 35D is proposed to make it easier to claim the deduction on amortization of preliminary expenditure. The statement of details of such expenditure must now be submitted to the income tax authority in the prescribed form and manner within the prescribed time frame in order to claim the preliminary expense deduction.

 Presumptive Taxation

• Increase in the following threshold limit for presumptive taxation schemes provided that the cash receipts are not more than 5% during the FY:

Capital Gain

• It is proposed to create a new section 50AA to treat the full value of the consideration received or accruing as a result of the transfer or redemption of such securities less the cost of acquisition of such debenture and the expenditure incurred , and to tax capital gains arising from the transfer or redemption or maturity of Market Linked Debentures as Short Term Capital Gains at applicable rates.
• For the purposes of calculating capital gains, the terms cost of acquisition and cost of improvement are defined in Section 55. As a result, the cost of acquisition and improvement for capital assets that are intangible assets or any other right that wasn’t previously defined specifically will now be referred to as “NIL”.
• The maximum deduction that an assessee may claim under Sections 54 and 54F has been raised to Rs. 10 crores.
• There would be no capital gain tax if physical gold was converted to an electronic gold receipt or vice versa.

TDS Provisions

• Increment in the cash withdrawal cap by co-operative society from Rs. 1 Crore to Rs.3 Crores.
• Facilitating TDS Credit for income already disclosed in ITR of earlier years:
  • Previously, there was no provision for claiming tax credits for taxes deducted after the year in which the income was offered. Taxpayers can now request rectification within two years of the fiscal year’s end in which the tax was deducted.
• Removal of section 193’s exemption from TDS on interest payments made to residents on listed debentures (TDS on interest on securities). According to current regulations, Section 193 exempts companies from deducting TDS on interest earned on a select group of securities when those securities are held in demat form and traded on an Indian recognized stock exchange. With the proposed change by Budget 2023, such an exemption is now held removed as of April 1, 2023, i.e. interest on such debt is now deductible.
• With effect from 1 April 2023, the threshold limit of Rs. 10,000 for withholding tax on online gaming under Section 194B has been removed, thus tds is deductible even if online gaming income is less than Rs. 10,000.
• Additionally, it is proposed to insert a new Section 194BA for TDS on income from online gaming beginning on July 1, 2023, and to exclude online gaming from Section 194B.
• Section 194R (Deduction of tax on benefit or perquisite in respect of business or profession) expanded to include benefit or perquisite whether in cash or in kind or partly in cash or partly in kind.
• Reduction in the rate of TDS from 30% to 20% on the taxable portion of EPF withdrawal in case of absence of PAN w.e.f 1^st April 2023.
• Extending Section 197 (Certificate of Tax Deduction at lower or nil rate) to Section 194LBA that provides for the assessee to deduct TDS @5% on interest income of Non-Resident Unit Holders w.e.f  1^st April 2023.

TCS Provisions

• Increment in the rate of TCS on certain foreign remittances through Liberalised Remittance Scheme and on the sale of overseas tour packages under Section 206C(1G) of the Act w.e.f. 1^st April 2023.
• Current and proposed TCS Rates are as follows:
  

     There is no change in the TCS rates for remittances for education and medical treatment.

Penalty Provisions

• Financial institutions that provide false or inaccurate information in the statement of financial transactions submitted by a prescribed reporting financial institution in violation of Section 285BA are subject to a penalty of Rs. 5000.
• Relaxation in penalty limit for cash loans and transactions against primary co-operatives by increasing the limit of accepting or repayment of loans or deposits in cash from Primary Agricultural Credit Societies (PACS) and Primary Co-operative Agricultural and Rural Development Bank (PCARD) from Rs. 20000 to Rs.200000 provided that such loan or deposit is taken/given from/to its member.
• These amendments shall come into effect from 1^st April 2023.

Others Provisions

• Income from life insurance policies (other than ULIPs) issued on or after 1 April 2023 with an aggregate premium of Rs. 5 lakhs is taxable. The tax exemption provided for the amount received upon the insured person’s death and for insurance policies issued up until the 31st of March, 2023, will not be impacted by this, though.
• Expanding the scope of Section 9(1) deeming provision to Not- ordinary residents( NORs) i.e. deemed income provision for money received in excess of Rs.50000 extended to NORs.
• The time limit under Section 92D for submitting documents to the transfer pricing officer is shortened from 30 days to 10 days from the date of the notice.
• With effect from 1 April 2023, the time period for finishing an assessment under Section 153 of the Act has been extended from 9 to 12 months from the end of the fiscal year in which income was first assessable.
• Cases requiring inventory valuation may be referred to cost accountants by the assessing officer under Section 142(2A).
• Following reliefs are provided to Start-ups:
  • The deadline for incorporating eligible startups was extended from March 31, 2023, to March 31, 2024.
  • Startups can carry forward and set off their losses incurred during the period of 7 years from its incorporation currently, this time period is proposed to be increased to 10 years provided that at least 51% shareholding (as on the last date of the previous year) remains same with the company on the last date of the previous year to which the loss.