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Highlights of the Key Direct Tax Proposals in the Finance Bill – 2023
Union Budget-2023 was certainly neither a populist budget nor an election budget. It has clearly laid the emphasis on prioritizing economic growth with capital spending to generate growth and employment. Equal focus was there on qualitative and productive expenditure. On the direct tax front, there were lots of expectations by the taxpayers for concessions & reliefs. Let us have a look at the key direct tax proposals in the Finance Bill 2023:
- Common Income Tax Return (ITR) Form:
At present, there are different forms for different categories of taxpayers. Now, “Common Income Tax Return (ITR) Form” is proposed for the convenience and benefit of taxpayers.
- Increase of Tax Rebate limit to Rs. 7 Lakh:
Higher tax rebate is proposed for the taxpayers opting for new tax regime. The tax rebate u/s 87A has been raised from Rs. 12,500/- to Rs. 25,000/- for all the taxpayers opting for the new tax regime. In short, now all individuals earning up to Rs. 7 Lakh are exempt from paying tax. Since the limit of rebate has been increased and not the basic exemption limit, there is no immunity from the process of filing income tax return for such taxpayers.
- Basic Exemption Limit of Rs. 3 Lakh for taxpayers opting for New Tax Regime:
Though the basic exemption limit has not been altered under the old tax regime, the same has been raised to Rs. 3 Lakh from Rs. 2.50 Lakh for taxpayers opting for the new tax regime. The tax rate and slab under the new tax regime is proposed as under:
|Total Income (Rs)||Rate|
|Up 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%|
- Benefit of Standard Deduction to be extended to New Tax Regime:
Earlier, the benefit of standard deduction was not available to the salaried taxpayers opting for the new tax regime. To make the new tax regime more appealing, the benefit of the standard deduction of Rs. 50,000/- & deduction from family pension up to Rs. 15,000/- has been extended to the taxpayers opting for the new tax regime also.
- Reduction in Highest rate of Surcharge from 37% to 25%:
The highest surcharge rate for individuals in the new tax regime is also proposed to be reduced from 37% to 25%. As a result of this, the maximum marginal rate for individuals shall be reduced from 42% to 39%. This will be another motivation to HNI to opt for the new tax regime.
- New Tax Regime to be made Default Tax Regime:
With a number of announcements and amendments, the Finance Minister has announced that the new income tax regime will be implemented as the default tax regime. However, taxpayers will have the option to continue receiving the benefits of the previous tax regime.
- Increased limit for leave encashment exemption:
The limit for tax exemption on leave encashment received at the time of retirement by Non-Government salaried employees is proposed to be raised to Rs. 25 lakh from Rs. 3 Lakh.
- Capping of Deduction u/s 54 and 54F at Rs 10 crore:
Presently, there is no ceiling for claiming capital gain exemption by investing the amount for purchase /construction of another residential house property U/s 54 or 54F. Budget 2023 proposes to cap the deduction amount. Now, the amount of investment in the new residential house property in excess of Rs. 10 Cr will not be considered for capital gain exemption.
- No exemption for Insurance Policies with Aggregate Premium above Rs. 5 Lakh:
Government is trying to reduce the domain of exempt income. Budget 2023 proposes to remove the status of tax exempt income status on receipts of proceeds from high-value insurance policies where the aggregate premium for life insurance policies (other than ULIP) issued on or after April 1, 2023 is more than Rs. 5 lakh. As a result, only those policies wherein aggregate premium is not exceeding Rs. 5 lakh will be exempt from tax.
- Enhanced Limits for Presumptive Taxation of MSMEs and Professionals:
To offer the benefit of presumptive scheme of taxation to micro, small, and medium-sized enterprises (MSMEs), the turnover threshold under presumptive scheme of taxation has been increased from Rs. 2 Cr to Rs. 3 Cr.
Further, the presumptive scheme of taxation will be available to the professionals with gross receipts not exceeding RS. 75 Lakh as against present limit of Rs. 50 Lakh. Both the enhanced limit will apply only if the amount or total amount received in cash during the year does not exceed 5% of total gross receipts or turnover.
- Deduction towards purchase/expenditure available only after actual payments to MSME:
One of the most important proposals in the Union Budget 2023 is with regard to the amount payable to MSME. As far as MSME is concerned, it is proposed that the deduction towards expenditure will be available only when the payment is made [Section 43B amendment proposed]. Though the provision is incorporated in order to assist such enterprises in receiving payments on time, it may carry adverse impact as well.
- Relief to Cooperative Sector:
a) New co-operatives that begin manufacturing activities before March 31, 2024, will be eligible for a 15% tax rate, which is currently available to new manufacturing companies.
b) A higher limit of Rs. 2 lakh per member for cash deposits to and cash loans from primary agricultural cooperative societies (PACS) and primary cooperative agriculture and rural development banks (PCARDBs) has been provided as against existing limit of Rs. 20,000/-.
c) Co-operative societies will be given a higher limit of Rs. 3 crore for applicability of TDS on cash withdrawals.
- Support for Start-ups:
a) The date of incorporation of start-ups for income tax benefits is proposed to be extended from March 31, 2023, to March 31, 2024.
b) The benefit of carrying forward of losses on shareholding changes in start-ups is extended from seven years to ten years after incorporation.
Above is just a short overview of the few direct tax proposals in the Finance Bill – 2023. Whether now, new tax regime would be better or old one, how the limit of Rs. 10 Cr for capital gain exemption would affect the taxpayers, whether MSME would be benefitted by the presumptive scheme of taxation, etc, we will discuss & analyze it all in our subsequent issues of The Tax Talk.
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CA Naresh Jakhotia
Partner – M/s. SSRPN & Co.
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