Get Ready for Budget–2023: Enhanced limit for Tax Audit likely

Budget 2023 would probably be the most powerful, remarkable & Dream budget of the Modi Government – II. The news suggests that the process of reform has been started and likely to be the issue of regular discussion till Feb 1^st 2023.

 

Though the proposal to introduce the New Direct Tax code has been scrapped, the proposal as was there in the earlier proposed Direct Tax Code will find a place in the Union Budget 2023.

 

Taxpayers may note that this will be probably the last Budget of the 2^nd Tenure of the Modi Government as 2024 will be the election year wherein the Government may be just presenting the Vote on Account and not the full fledged budget. This is the last opportunity for the Modi Government to take the reforms forward on the tax front. In view of this, the Budget 2023 will be the biggest opportunity which the Finance Ministry doesn’t want to miss out on.

 

The news suggests that the New Tax Regime will be made so lucrative and appealing that the charm of the Old Tax Regime will be over. It means that opting for the new tax regime would be better as compared to the old tax regime.

This could be done by widening the gap of the new tax regime wherein presently the tax slab changes every Rs. 2.50 Lakh by 5%. The gap of Rs. 2.50 Lakh is likely to be replaced by Rs. 10 Lakh. It may happen that the basic exemption limit may remain unaltered but the 5% tax slab may be there for income up to Rs. 10 Lakh. Income between Rs. 10 Lakh to Rs. 20 Lakh may be the part of 15% tax slab and the income between Rs. 20 Lakh to Rs. 30 Lakh may be the part of 25% tax slab. The income above Rs. 30 Lakh may be liable for the tax rate of 30%.  As a result of this, the present persons with income exceeding Rs. 10 Lakh who were otherwise liable to pay the tax @ 30% will be hugely benefited by the new tax bonanza. The result would be obvious; the taxpayers in the new tax regime without any exemption & deduction would be in a better position than the person opting for the old tax regime with exemption and deduction.

 

One may note that there are instances of fake deduction & exemption which is going to be eliminated by this process of new tax regime. Not all the returns are subject to the scrutiny and verification process and the new tax regime would eliminate the chances of the fake deduction & exemption claim. The biggest beneficiary of the new tax regime as now considered by the Finance Ministry for Budget 2023 would be the salaried taxpayers who have been complaining since the last 2 decades of being subject to higher taxation for being honest and genuine taxpayers.

 

Another biggest beneficiary of the Budget 2023 will be the middle class taxpayers who have been complaining every now and then of higher tax burden. With this in mind, the surcharge on HNI, Firm and corporate will be continued and is not likely to be changed in the Budget 2023.

Another area of the changes would be tighter penalty and fine provision. The tax evaders are on the radar of the department and the same would continue to be so. The prosecution provision would be widened and the case of prosecution will witness the terrible rise as compared to mere monetary penal provision. This finance ministry has already made its intention clear that it will be acting tough against tax evaders.

Further, the charitable trust and institutions are going to witness harsh tax provision. There are enormous new provisions which are going to find a place for regulating charitable trust.

One area which must be considered and was missing since last many years is the question of “Accountability” of the tax administrator who are grossly misusing the power resulting in tax terrorism. It may be recalled here that various courts across the country have imposed the fine on the officers for being casual and careless in their approach and working. Further, the undeniable fact is that the Judge of the Hon’ble High court has been recently transferred just because of the fine of Rs. 50 Lakh was imposed for casual approach of the officers.

 

Though the earlier proposed Direct Tax Code has been scrapped, the Finance Act-2023 is likely to make most of the provision as part of the Income Tax Act-1961 only by following the principle “old is Gold”.

 

Another area of improvement would be further increasing the limit of tax audit. The limit of Rs. 1 Cr for tax audit was set long back. However, for the assessee with digital transactions of 95%, the limit as of now is Rs. 10 Cr. The budget may enhance the limit of Rs. 1 Cr and Rs. 10 Cr to Rs. 5 Cr and Rs. 25 Cr. This will be an attempt to convey that the Government believes in ease of business and nothing else.

 

The area where relaxation is not likely to be there will be the provision related to the Tax Deduction at Source (TDS). The rate as well as threshold limit is not going to witness the adverse impact but a new provision of TDS may be introduced. It may be proposed that every transaction would now be subject to either TDS/TCS. The Government is considering the proposal to give one more option to the deductor by relaxing the requirements of quarterly TDS/TCS return filing. The deductor/collector can give the details of the deductee at the time of making monthly tax payment wherein the challan cum return form would be there. The same system is already prevailing for making the payment of TDS on immoveable property. Further, the TDS credit statement is likely to be made operational on a real time basis only. As a result, the TDS credit will be reflected as soon as the deductor / collector pays the challan.

 

The next reform is expected to be on the capital gain taxation front. The concept of no tax on “roll over” of the capital assets may be there in the Union Budget 2023. At present, only the investment in the residential premises result in capital gain exemption. The budget 2023 may provide that if the commercial property is sold and reinvested in another residential property then the capital gain exemption would be there.

 

On speedily income tax refund, the Finance Minister may announce having cleared the income tax refund filed till 31.12.2022 in its budget.

 

Budget 2023 is likely to be the Dream Budget for the taxpayers. Let us hope more reforms and ease is provided in probably the last budget of the 2^nd inning of the Modi Government.

& Dream budget of the Modi Government – II. The news suggests that the process of reform has been started and likely to be the issue of regular discussion till Feb 1^st 2023.

Though the proposal to introduce the New Direct Tax code has been scrapped, the proposal as was there in the earlier proposed Direct Tax Code will find a place in the Union Budget 2023.

Taxpayers may note that this will be probably the last Budget of the 2^nd Tenure of the Modi Government as 2024 will be the election year wherein the Government may be just presenting the Vote on Account and not the full fledged budget. This is the last opportunity for the Modi Government to take the reforms forward on the tax front. In view of this, the Budget 2023 will be the biggest opportunity which the Finance Ministry doesn’t want to miss out on.

The news suggests that the New Tax Regime will be made so lucrative and appealing that the charm of the Old Tax Regime will be over. It means that opting for the new tax regime would be better as compared to the old tax regime.

This could be done by widening the gap of the new tax regime wherein presently the tax slab changes every Rs. 2.50 Lakh by 5%. The gap of Rs. 2.50 Lakh is likely to be replaced by Rs. 10 Lakh. It may happen that the basic exemption limit may remain unaltered but the 5% tax slab may be there for income up to Rs. 10 Lakh. Income between Rs. 10 Lakh to Rs. 20 Lakh may be the part of 15% tax slab and the income between Rs. 20 Lakh to Rs. 30 Lakh may be the part of 25% tax slab. The income above Rs. 30 Lakh may be liable for the tax rate of 30%.  As a result of this, the present persons with income exceeding Rs. 10 Lakh who were otherwise liable to pay the tax @ 30% will be hugely benefited by the new tax bonanza. The result would be obvious; the taxpayers in the new tax regime without any exemption & deduction would be in a better position than the person opting for the old tax regime with exemption and deduction.

One may note that there are instances of fake deduction & exemption which is going to be eliminated by this process of new tax regime. Not all the returns are subject to the scrutiny and verification process and the new tax regime would eliminate the chances of the fake deduction & exemption claim. The biggest beneficiary of the new tax regime as now considered by the Finance Ministry for Budget 2023 would be the salaried taxpayers who have been complaining since the last 2 decades of being subject to higher taxation for being honest and genuine taxpayers.

Another biggest beneficiary of the Budget 2023 will be the middle class taxpayers who have been complaining every now and then of higher tax burden. With this in mind, the surcharge on HNI, Firm and corporate will be continued and is not likely to be changed in the Budget 2023.

Another area of the changes would be tighter penalty and fine provision. The tax evaders are on the radar of the department and the same would continue to be so. The prosecution provision would be widened and the case of prosecution will witness the terrible rise as compared to mere monetary penal provision. This finance ministry has already made its intention clear that it will be acting tough against tax evaders.

Further, the charitable trust and institutions are going to witness harsh tax provision. There are enormous new provisions which are going to find a place for regulating charitable trust.

One area which must be considered and was missing since last many years is the question of “Accountability” of the tax administrator who are grossly misusing the power resulting in tax terrorism. It may be recalled here that various courts across the country have imposed the fine on the officers for being casual and careless in their approach and working. Further, the undeniable fact is that the Judge of the Hon’ble High court has been recently transferred just because of the fine of Rs. 50 Lakh was imposed for casual approach of the officers.

Though the earlier proposed Direct Tax Code has been scrapped, the Finance Act-2023 is likely to make most of the provision as part of the Income Tax Act-1961 only by following the principle “old is Gold”.

Another area of improvement would be further increasing the limit of tax audit. The limit of Rs. 1 Cr for tax audit was set long back. However, for the assessee with digital transactions of 95%, the limit as of now is Rs. 10 Cr. The budget may enhance the limit of Rs. 1 Cr and Rs. 10 Cr to Rs. 5 Cr and Rs. 25 Cr. This will be an attempt to convey that the Government believes in ease of business and nothing else.

The area where relaxation is not likely to be there will be the provision related to the Tax Deduction at Source (TDS). The rate as well as threshold limit is not going to witness the adverse impact but a new provision of TDS may be introduced. It may be proposed that every transaction would now be subject to either TDS/TCS. The Government is considering the proposal to give one more option to the deductor by relaxing the requirements of quarterly TDS/TCS return filing. The deductor/collector can give the details of the deductee at the time of making monthly tax payment wherein the challan cum return form would be there. The same system is already prevailing for making the payment of TDS on immoveable property. Further, the TDS credit statement is likely to be made operational on a real time basis only. As a result, the TDS credit will be reflected as soon as the deductor / collector pays the challan.

The next reform is expected to be on the capital gain taxation front. The concept of no tax on “roll over” of the capital assets may be there in the Union Budget 2023. At present, only the investment in the residential premises result in capital gain exemption. The budget 2023 may provide that if the commercial property is sold and reinvested in another residential property then the capital gain exemption would be there.

On speedily income tax refund, the Finance Minister may announce having cleared the income tax refund filed till 31.12.2022 in its budget.

Budget 2023 is likely to be the Dream Budget for the taxpayers. Let us hope more reforms and ease is provided in probably the last budget of the 2^nd inning of the Modi Government.