Budget 2023 Analysis – Major Income Tax Highlights

Budget 2023 by Nirmala Sitharaman was presented on 1st February 2023 and it was indeed a revolutionary budget, especially for the taxpayers and middle class. The long-pending wish was fulfilled after a reduction in the tax rates in Budget 2023 followed by a consequent increase in the tax slabs. It can be said that the entire tax structure for individuals was revamped which will prove beneficial for them. Last time, the tax structure was revised in 2014 followed by a new optional tax regime in 2020. Let’s see the income tax key highlights of Budget 2023.

1) Changes Relating to Tax Rates

Income tax slabs again saw major changes, but this time in the new tax regime u/s 115BAC. Following is the comparison between new and old slabs:

• This regime u/s 115BAC will be the default regime. To continue with the old tax regime, the person needs to exercise option.
• Earlier, the rebate on income tax was provided under both regime in case the income does not exceed Rs. 5 lakhs. Now that limit has been increased to Rs. 7 lakhs for new tax regime only. Thus, in case, under new tax regime, if the income of the individual is up to Rs. 7 lakhs, then it will not attract any tax liability. If the income increases above Rs. 7 lakhs, then the tax shall be charged as per applicable tax rates..
• It should be noted that most of the deductions under this regime have been disallowed as earlier.
• There is an alternative in Budget 2023 whereby the taxpayers will still have the option to go for the old regime where deductions can still be claimed. However, the rebate under this regime will be the same as before. Following will be the tax rates applicable in this case:

• If a person has income under the head “Profits and Gains of Business or Profession”, then such person can opt for the old regime only once. Once such an assessee opts out of the old regime, then such an assessee will compulsorily have to follow the new regime. However, for other assessees, the option for the old regime can be exercised anytime. 
• If the income exceeded Rs. 5 crores, then a surcharge @37% was levied. This has been reduced to 25%.

2) Change Related to Deductions

• Standard Deduction: Earlier, the standard deduction for the salaried class was available only under the old tax regime and not the new regime u/s 115BAC that was introduced in 2020. Now, taxpayers opting for the new tax regime u/s 115BAC will also get the benefit of a standard deduction.
• Leave Encashment: Tax exemption on leave encashment on retirement for non-government salaried employees has been increased to Rs. 25 lakhs. The existing limit here was Rs. 3 lakhs.

3) Changes Relating to Income

• Change in Presumptive Taxation Limits: Earlier, the turnover limits for presumptive taxation option u/s 44AD and 44ADA were Rs. 2 crores and Rs. 50 lakhs respectively. Now, if the cash receipts of the assessee do not exceed 5%, then a higher limit of Rs. 3 crores and Rs. 75 lakhs shall be applicable. That means, more people can now opt for presumptive taxation if their cash receipts are not more than 5%.
• Income Deemed to Accrue or Arise in India: If any income arises outside India because of a gift given by a person resident in India to a –
• A person resident in India to a non-resident on or after 5th July 2019 or
• A person not ordinarily resident in India on or after 1st April 2023,

4) Sector Specific Changes

• Deduction on Payments to MSMEs: To further support the MSME, the deduction for payments to be made to MSMEs can only be claimed after the payment has actually been made. Proviso to pay the outstanding on or before the due date of filing of return shall not be applicable in this case. In order to get deduction u/s 43B, outstanding needs to be paid within the time stipulated in MSME Act. 
• Extension of Time Limit for Startups: The date of incorporation for extending the income tax benefits to the startups has been extended from 31-03-2023 to 31-03-2024. Further, the benefit of carrying forward of losses in case of change in the shareholding of startups has been extended from 7 years to 10 years.

5) Changes Relating to Co-operative Societies 

• Concessional Tax Rate: New co-operative societies formed on or after 01-04-2023 and commencing manufacturing or production by 31-03-2024 that are not availing of any specified deduction or incentive can opt to pay tax at a lower rate of 15%. 
• TDS on Cash Withdrawal: Co-operative societies can withdraw up to Rs. 3 lakhs in a year without attracting TDS on such withdrawals.

6) TDS / TCS Related Changes

• TDS on Interest on Debentures: Exemption on TDS for interest payment on listed debentures is proposed to be withdrawn.
• TDS on Online Games: In the case of online games, TDS will be applicable on net winnings without the threshold limit of Rs. 10,000.
• TCS on Foreign Remittances: TCS rate on foreign remittances for medical treatment and education will continue at 5% for remittances exceeding Rs. 7 lakhs. In the case of remittances for education through a loan from financial institutions, it will be 0.5%. But TCS on foreign remittances for other purposes under LRS and purchase of overseas tour program is proposed to be increased from 5% to 20%.

ASC’s Outlook on Budget 2023 Highlights

Budget 2023 by Nirmala Sitharaman saw huge changes in income tax. The long-fulfilled desire of the taxpayers was fulfilled. However, the changes were bought to the new tax regime u/s 115BAC whereby most of the deductions have been disallowed. Thus, it is now upon the taxpayers to go for the new regime or the old one. Apart from that, the government has focused on infusing more capital in various sectors for overall development. If you need additional information regarding the Budget 2023 highlights and analysis and how will it impact you and your business, feel free to contact the ASC Group.

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