Budget 2023 aims at providing a stable direct tax regime

The Union Budget 2023-24 was presented in the backdrop of global economic headwinds, inflationary pressures, almost a year-long Russia-Ukraine conflict, and global shift in supply chains. There is an increased global focus on use of green energy as well as evolution and adoption of new technologies around Artificial Intelligence and related innovations resulting in ever-increasing technology led societies.

Governments across the globe have also been focusing on funding post pandemic recovery, which has put pressure on budgetary capacities. At the domestic front, the government presented its last full budget wherein it had to maintain a balance in fueling growth trajectory, while being on the path of fiscal prudence.

The government continues to spend on public infrastructure including logistics, technology, infrastructure and public utilities while focusing on emerging areas like transition to green energy, AI, promotion of lab grown diamonds, drone technology, 3D printing, start-up ecosystem, 5G related innovation, etc. The increase in capital outlay has also been another highlight of the budget announcement.

Direct taxes remain a key source of revenue which has shown steady growth in the fiscal year FY23. Further, the budget aims to ensure stable tax regime, while rationalising provisions to reduce compliance burden. The Finance Minister has highlighted the importance to roll out next-generation common tax return and strengthen grievance redressal mechanism for taxpayer convenience.

On the personal tax front, new tax regime is now made the default option for all taxpayers wherein no tax liability will arise for individuals earning income up to Rs 7 lakh as against Rs 5 lakh. The slabs and tax rates under the new regime have also been revamped to reduce overall tax burden. Some relief was also provided to high income earning individuals, with highest rate of surcharge reduced to 25 per cent from 37 per cent subject to being taxed under the new regime. Eligibility limit to opt for presumptive taxation was also been increased to Rs 75 lakh for professionals provided cash receipts do not exceed 5 per cent of such turnover.

To promote manufacturing, effective FY 2023-24, a new manufacturing co-operative society will be set up on or after 1 April 2023 and will commence production on or before 31 March 2024, with a concessional tax rate of 15 per cent (excluding surcharge and cess), without availing specified incentive or deductions.

To encourage start-ups, the eligible period to carry forward and set-off business losses have been increased from 7 years to 10 years from date of incorporation in cases of change in shareholding of more than 51 per cent. Further, eligible start-ups can now be incorporated till 31 March 2024 to avail the tax holiday benefits.

To provide boost to MSMEs, tax deduction for payments to MSMEs will now be allowed on actual payment basis. Further, turnover limit for eligibility of presumptive taxation has been enhanced to Rs 3 crore from Rs 2 crore for MSMEs.

Coming to anti-tax avoidance measures, receipt of share capital by closely held companies at more than fair market value will now attract tax liability even in case of non-resident investors to check generation and circulation of unaccounted moneys.

Seeing the rise of online gaming, government has introduced specific provisions for tax withholding on winnings from online games w.e.f. 1 July 2023. Tax will be withheld at ‘rates in force’ on ‘net winnings’ in the user account at the end of the financial year. Further, a separate charging section has been inserted to tax such winnings from online games at the rate of 30%. The method of calculating ‘net winnings’ will be prescribed in due course.

To address challenges of loss of TDS credit in cases where taxpayers offer income to tax on accrual basis but TDS is deducted in a subsequent year, such taxpayers will now be able to make an application to the Assessing Officer to claim credit for such TDS credit. Such application can be made within two years from the end of the year in which TDS was deducted. While this is a welcome move, procedural clarity would be required to ensure intended relief to taxpayers.

The Government has also provided relief by increasing assessment timelines, faster disposal of small appeals by appointing new Joint Commissioners, rationalizing various provisions and decriminalizing certain provisions.

To sum it up, the Government continues with its aim of providing a stable tax regime to encourage private investment while focusing on ease of compliance and reduced tax litigation.

This article was originally published in Business Standard.