UNION BUDGET 2023

Finance Minister Mrs. Nirmala Sitharaman presented the Union Budget 2023 on 1st February, 2023. Let us discuss the proposed changes in the Income Tax and GST laws by the Union Budget, 2023.

INCOME TAX AND GST UPDATES

INCOME TAX UPDATES

1. New Tax Regime

The new tax regime will be the default tax regime. Any individual, HUF, AOP (other than co-operative), BOI or AJP not willing to be taxed under this new regime can opt to be taxed under the old regime. For those people having income under the head “profit and gains of business or profession” and having opted for old regime can revoke that option only once and after that they will continue to be taxed under the new regime. For those not having income under the head “profit and gains of business or profession”, option for old regime may be exercised in each year.

New slab rates under new tax regime;

Total Income (`)	Rate (per cent)
Upto 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
Above 15,00,000	30

2. Increase in Rebate

Presently no income tax is levied for an individual having total income up to 5 lakhs under old and new both tax regimes, the rebate will now be increased so as to exempt the taxes up to an income of 7 lakhs in case of new tax regime.

3. Standard deduction

The standard deduction of Rs. 50,000 to salaried individuals which is currently allowed in old tax regime only will now be available under new tax regime.

4. Deduction from family pension

Deduction from family pension up to Rs. 15000 which is currently allowed in old tax regime only will now be available under new tax regime.

5. Decrease in surcharge those individuals, HUF, AOP (other than co-operative), BOI and AJP (Artificial Judicial Person) under the new regime:

S. No.	Total Income	Surcharge	Change
1.	Above 50 lakhs – Up to 1 crore	10	No Change
2.	Above 1 crore – Up to 2 crores	15	No Change
3.	Above 2 crore – Up to 5 crores	25	No Change
4.	Above 5 crores	37	Reduced to 25

6. Extension of limit for leave encashment

Encashment of earned leave up to 10 months of average salary, at the time of retirement in case of an employee (other than an employee of the Central Government or State Government), is exempt under sub-clause (ii) of clause (10AA) of section 10 of the Income-tax Act (“the Act”) to the extent notified. The maximum amount which can be exempted is ` 3 lakh at present is proposed to be extended to 25 lakhs.

7. Payment to MSMEs

Payments to MSMEs will be allowed only on the actual payment basis.

8. Agnipath Scheme, 2022 (For armed forces)

The payment received from the Agniveer Corpus Fund by the Agniveers enrolled in Agnipath Scheme, 2022 is proposed to be exempt from taxes. Deduction in the computation of total income is proposed to be allowed to the Agniveer on the contribution made by him or the Central Government to his Seva Nidhi account.

9. Relief to sugar co-operatives from past demand

It is proposed that for sugar co-operatives, for years prior to A.Y. 2016-17, if any deduction claimed for expenditure made on purchase of sugar has been disallowed, an application may be made to the Assessing Officer, who shall recompute the income of the relevant previous year after allowing such deduction up to the price fixed or approved by the Government for such previous year.

10. Increasing threshold limit for Co-operatives to withdraw cash without TDS

It is proposed to enable co-operatives to withdraw cash up to ` 3 crore in a year without being subjected to TDS on such withdrawal. 

11. Penalty for cash loan/transactions against primary co-operatives

Section 269SS and 269T which prohibits for acceptance of deposit and repayment of loan in access of Rs. 20,000 in cash is hereby proposed to be amended to provide that where a deposit is accepted or repaid by a primary agricultural credit society or a primary co-operative agricultural and rural development bank from its member or a loan is taken from a primary agricultural credit society or a primary co-operative agricultural and rural development bank by its member in cash, no penal consequence would arise, if the amount of such loan or deposit in cash is less than  ` 2 lakh.

12. Relief to start-ups in carrying forward and setting off of losses

The condition of continuity of at least 51 per cent shareholding for setting off of carried forward losses is relaxed for an eligible start up if all the shareholders of the company continue to hold those shares. At present this relaxation applies for losses incurred during the period of 7 years from incorporation of such start-up. It is proposed to increase this period to 10 years.

13. Extension of date of incorporation for eligible start up for exemption 

Certain start-ups are eligible for some tax benefit if they are incorporated before 1st April, 2023. The period of incorporation of such eligible start-ups is proposed to be extended by one year to before 1st April, 2024

14. Gold to Electronic Gold Receipt

The conversion of physical gold to Electronic Gold Receipt and vice versa is proposed not to be treated as a transfer and not to attract any capital gains. This would promote investments in electronic equivalent of gold.

15. Incentives to IFSC (International Financial Service Centre)

Relocation of funds to IFSC has certain tax exemptions, if the relocation is before 31.03.2023. This date is proposed to be extended to 31.03.2025. Further, any distributed income from the offshore derivative instruments entered into with an offshore banking unit is also proposed to be exempted subject to certain conditions.

16. Exemption to development authorities etc.

It is proposed to provide exemption to any income arising to a body or authority or board or trust or commission, (not being a company) which has been established or constituted by or under a Central or State Act with the purposes of satisfying the need for housing or for planning, development or improvement of cities, towns and villages or for regulating any activity or matter, irrespective of whether it is carrying out commercial activity.

17. Facilitating certain strategic disinvestments

To facilitate certain strategic disinvestments, it is proposed to allow carry forward of accumulated losses and unabsorbed depreciation allowance in the case of amalgamation of one or more banking company with any other banking institution or a company subsequent to a strategic disinvestment, if such amalgamation takes place within 5 years of strategic disinvestment. It is also proposed to modify the definition of ‘strategic disinvestment’.

18. 15 per cent concessional tax to promote new manufacturing cooperative society

In order to promote the growth of manufacturing in co-operative sector, a new co-operative society formed on or after 01.04.2023, which commences manufacturing or production by 31.03.2024 and do not avail of any specified incentive or deduction, is proposed to be allowed an option to pay tax at a concessional rate of 15 per cent similar to what is available to new manufacturing companies.

19. Ease in claiming deduction on amortization of preliminary expenditure

At present for claiming amortization of certain preliminary expenses, the activity is to be carried out either by the assessee or by a concern approved by the Board. In order to ease the process of claiming amortization of these expenses it is proposed to remove the condition of activity in connection with these expenses to be carried out by a concern approved by the Board. Format for reporting of such expenses by the assessee shall be prescribed.

20. Increasing threshold limits for presumptive taxation schemes

Threshold limit for opting for presumptive taxation increased from 2 Crores and 50 lakhs to 3 crores and 75 lakhs for business and profession respectively in case the cash receipts are not more than 5 percent of the total receipts.

21. Extending the scope for deduction of tax at source at lower or nil rate

It is proposed to allow a taxpayer to obtain certificate of deduction of tax at source to lower or nil rate on sums on which tax is required to be deducted under section 194LBA of the Act by Business Trusts. (Unit holders of Business Trust)

22. WIDENING & DEEPENING OF TAX BASE AND ANTI AVOIDANCE

• It is proposed to extend the deemed income accrual provision relating to sums of money exceeding fifty thousand rupees, received from residents without consideration to a not ordinarily resident with effect from 1st April, 2023.
• It is proposed to omit the provision to allow tax exemption to news agencies set up in India solely for collection and distribution of news from the financial year 2023-24.
• It is proposed to tax distributed income by business trusts in the hands of a unit holder (other than dividend, interest or rent which is already taxable) on which tax is currently avoided both in the hands of unit holder as well as in the hands of business trust.
• It is proposed to withdraw the exemption from TDS currently available on interest payment on listed debentures.
• With respect to presumptive schemes for non-residents, it is proposed to disallow carried forward and set off of loss computed as per books of account with presumptive income.
• For online games, it is proposed to provide for TDS and taxability on net winnings at the time of withdrawal or at the end of the financial year. Moreover, TDS would be without the threshold of ` 10,000. For lottery, crossword puzzles games, etc threshold limit ` 10,000 for TDS shall continue but shall apply to aggregate winnings during a financial year.
• The rate of TCS for foreign remittances for education and for medical treatment is proposed to continue to be 5 per cent for remittances in excess of ` 7 lakh. Similarly, the rate of TCS on foreign remittances for the purpose of education through loan from financial institutions is proposed to continue to be 0.5 per cent in excess of `7 lakh. However, for foreign remittances for other purposes under LRS and purchase of overseas tour program, it is proposed to increase the rates of TCS from 5 per cent to 20 per cent.
• Tax on capital gains can be avoided by investing proceeds of such gains in residential property. This is proposed to be capped at ` 10 crore.
• The income from market linked debentures is proposed to be taxed as short-term capital gains at the applicable rates.
• It is proposed to provide that where aggregate of premium for life insurance policies (other than ULIP) issued on or after 1st April, 2023 is above ` 5 lakh, income from only those policies with aggregate premium up to ` 5 lakh shall be exempt. This will not affect the tax exemption provided to the amount received on the death of person insured. It will also not affect insurance policies issued till 31st March, 2023. t is proposed to amend provisions for computing capital gains in case of joint development of property to include the amount received through cheque etc. as consideration.
• While interest paid on borrowed capital for acquiring or improving a property can, subject to certain conditions, be claimed as deduction from income, it can also be included in the cost of acquisition or improvement on transfer, thereby reducing capital gains. It is proposed to provide that the cost of acquisition or improvement shall not include the amount of interest claimed earlier as deduction.
• There are certain assets like intangible assets or rights for which no consideration has been paid for acquisition and the transfer of which may result in generation of income. Their cost of acquisition is proposed to be defined to be NIL.

23. IMPROVING COMPLIANCE AND TAX ADMINISTRATION

• With respect to rectification of orders by the Interim Board of Settlement, it is proposed to provide that where the time-limit for amending an order by it or for making an application to it expires on or after 01.02.2021 but before 01.02.2022, such time-limit shall stand extended to 30.09.2023.
• To expedite the disposal of certain appeals pending with Commissioner (Appeals), it is proposed to introduce a new authority in the rank of Joint Commissioner/ Additional Commissioner [JCIT(Appeals)], for appeals against certain orders passed by or with the approval of an authority below the rank of Joint Commissioner. Certain related and consequential amendments are also proposed in this regard.
• It is proposed to reduce the minimum time period required to be provided by the transfer pricing officer to assessee for production of documents and information from 30 days to 10 days.
• It is proposed to provide for appeal against penalty orders passed by Commissioner (Appeals) under certain sections of the Act before the Appellate Tribunal. It is also proposed to provide that an order under section 263 of the Act passed by the Principal Chief Commissioner or Chief Commissioner and any rectification order for the same shall also be appealable before the Appellate Tribunal. Further, it is proposed to enable filing of memorandum of cross-objections in all classes of cases against which appeal can be made to the Appellate Tribunal.
• It is proposed to amend section 132 of the Act, dealing with search and seizure, to allow the authorized officer to take assistance of specific domain experts like digital forensic professionals, valuers and services of other professionals like locksmiths, carpenters etc. during the course of search and also to aid in accurate estimation of undisclosed income held in the form of property by the assessee.
• Section 170A of the Act, inserted vide Finance Act, 2022 is proposed to be substituted to clarify that a modified return shall be furnished by an entity to whom the order of the business reorganization applies, and to introduce provisions for assessment or reassessment in cases where such modified return is furnished.
• It is proposed that an order of assessment may be passed within a period of 12 months from the end of the relevant assessment year or the financial year in which updated return is filed, as the case may be. It is also proposed that in cases where search under section 132 of the Act or requisition under section 132A of the Act has been made, the period of limitation of pending assessments shall be extended by twelve months.
• It is proposed to make amendments to empower the Central Government to make modifications in the already notified schemes regarding e-Verification, Dispute Resolution, Advance Rulings, Appeal and Penalty, at any time to enable better implementation of such schemes.
• It is proposed to limit the time for furnishing of a return for reassessment. Further, it is also proposed to provide that in cases where search related information is available after 15th March of any financial year, an additional period of fifteen days shall be allowed for issuance of notice, for assessment/reassessments etc, under section 148 of the Act. It is also proposed to clarify that the specified authority for granting approval shall be Principal Chief Commissioner or Principal Director General or Chief Commissioner or Director General.
• It is proposed to provide a penalty of ` 5,000 if there is any inaccuracy in the statement of financial transactions submitted by a prescribed reporting financial institution due to false or inaccurate information submitted by the account holder.
• It is proposed to amend section 271C and section 276B of the Act to provide for penalty and prosecution where default in TDS relates to transaction in kind.
• It is proposed to amend the time period for filing of appeal against the order of the Adjudicating authority under Benami Act within a period of 45 days from the date when such order is received by the Initiating Officer or the aggrieved person. The definition of ‘High Court’ is also proposed to be modified to allow determination of jurisdiction for filing appeal in the case of nonresidents.

24. RATIONALISATION

• The restriction on interest deductibility on interest payment to overseas associated enterprise does not apply to those in the business of banking and insurance. It is proposed to extend this benefit to non-banking financial companies, as may be notified.
• TDS on payment of certain income to a non-resident is currently at the rate of 20 per cent, but the tax rate in treaties may be lower. It is proposed to allow the benefit of tax treaty at the time of TDS on such income under section 196A of the Act.
• At present the TDS rate on withdrawal of taxable component from Employees’ Provident Fund Scheme in non-PAN cases is 30 per cent. It is proposed to reduce it to 20 per cent, as in other non-PAN cases.
• Sometimes, tax for income of an earlier year is deducted later, while tax thereon has already been paid in the earlier year. Amendment is proposed to facilitate such taxpayers to claim credit of this TDS in the earlier year.
• Higher TDS/TCS rate applies, if the recipient is a non-filer i.e. who has not furnished his return of income of preceding previous year and has aggregate of TDS and TCS of ` 50,000 or more. It is proposed to exclude a person who is not required to furnish the return of income for such previous year and who is notified by the Central Government in the Official Gazette in this behalf.
• It is proposed to clarify that the amount of advance tax paid is reduced only once for computing the interest payable u/s 234B in the case of an updated return.
• It is proposed to extend taxability of the consideration (share application money/ share premium) for shares exceeding the face value of such shares to all investors including non-residents.
• It is proposed to enable prescription of a uniform methodology for computing the value of perquisite with respect to accommodation provided by employers to their employees.
• It is proposed to provide a time limit for an SEZ unit to bring the proceeds from exports of goods or services into India. The filing of income-tax return is also proposed to be made mandatory for claiming deduction on export income.
• Due to changes in classification of non-banking financial companies by the Reserve Bank of India, it is proposed to make necessary amendments to align such classifications in the Act with the same.
• It is proposed to clarify that for taxability under section 28 of the Act as well for tax deduction at source under section 194R of the Act, the benefit could also be in cash (Perquisite exceeding value Rs. 20,000)
• Due to changes in classification of non-banking financial companies by the Reserve Bank of India, it is proposed to make necessary amendments to align such classifications in the Act with the same.
• It is proposed to clarify that for taxability under section 28 of the Act as well for tax deduction at source under section 194R of the Act, the benefit could also be in cash.
• It is proposed to make amendments relating to exemption provided to charitable trusts and institution
  • to provide clarity on tax treatment on replenishment of corpus and on repayment of loans/borrowings;
  • treat only 85 per cent of donation made to another trust as application;
  • omit the redundant provisions related to rolling back of exemption;
  • combine provisional and regular registration in some cases;
  • modify the scope of specified violation;
  • provide for payment of tax on assets if a trust does not apply for exemption after getting provisional exemption and for redemption after expiry of exemption;
  • align of time for furnishing of certain forms;
  • clarify that the time provided for furnishing return of income for claiming exemption shall not include the time provided for furnishing updated return.

• It is proposed to omit certain name-based funds from section 80G of the Act, which      provides for deduction of donation to such funds from the income of the donor.
• It is proposed to provide that where refund is due to a person, such refund shall be set off against existing demand, and if proceedings for assessment or reassessment are pending in such case, the refund due will be withheld by the Assessing Officer till the date of assessment or reassessment.
• It is proposed to extend tax exemption to Specified Undertaking of Unit Trust of India (SUUTI) till 30th September, 2023. It is also proposed to enable the Central Government to notify the date of vacation of office of administrator of SUUTI.
• It is proposed to decriminalize certain acts of omission of liquidators under section 276A of the Act with effect from 1st April, 2023.

LEGISLATIVE CHANGES IN GST LAWS

• Section 132 and section 138 of CGST Act are being amended, inter alia, to –
  • raise the minimum threshold of tax amount for launching prosecution under GST from ` one crore to ` two crore, except for the offence of issuance of invoices without supply of goods or services or both;
  • reduce the compounding amount from the present range of 50 per cent to 150 per cent of tax amount to the range of 25 per cent to 100 per cent;
  • decriminalize certain offences specified under clause (g), (j) and (k) of sub-section (1) of section 132 of CGST Act, 2017, viz.-
    • obstruction or preventing any officer in discharge of his duties;   
    • deliberate tempering of material evidence;
    • failure to supply the information.

• Facilitate e-commerce for micro enterprises

Amendments are being made in section 10 and section 122 of the CGST Act to enable unregistered suppliers and composition taxpayers to make intra-state supply of goods through ECommerce Operators (ECOs), subject to certain conditions.

• Amendment to Schedule III of CGST Act, 2017

Paras 7, 8 (a) and 8 (b) were inserted in Schedule III of CGST Act, 2017 with effect from 01.02.2019 to keep certain transactions/ activities, such as supplies of goods from a place outside the taxable territory to another place outside the taxable territory, high sea sales and supply of warehoused goods before their home clearance, outside the purview of GST. In order to remove the doubts and ambiguities regarding taxability of such transactions/ activities during the period 01.07.2017 to 31.01.2019, provisions are being incorporated to make the said paras effective from 01.07.2017. However, no refund of tax paid shall be available in cases where any tax has already been paid in respect of such transactions/ activities during the period 01.07.2017 to 31.01.2019.

• Return filing under GST 

Sections 37, 39, 44 and 52 of CGST Act, 2017 are being amended to restrict filing of returns/ statements to a maximum period of three years from the due date of filing of the relevant return / statement. 

•   Input Tax Credit for expenditure related to CSR

Section 17(5) of CGST Act is being amended to provide that input tax credit shall not be available in respect of goods or services or both received by a taxable person, which are used or intended to be used for activities relating to his obligations under corporate social responsibility referred to in section 135 of the Companies Act, 2013.

• Sharing of information

A new section 158A in CGST Act is being inserted to enable sharing of the information furnished by the registered person in his return or application of registration or statement of outward supplies, or the details uploaded by him for generation of electronic invoice or E-way bill or any other details on the common portal, with other systems in a manner to be prescribed.

• Amendments in section 2 clause (16) of IGST Act, 2017

Clause (16) of section 2 of IGST Act is amended to revise the definition of “non-taxable online recipient” by removing the condition of receipt of online information and database access or retrieval services for purposes other than commerce, industry or any other business or profession so as to provide for taxability of OIDAR service provided by any person located in non-taxable territory to an unregistered person receiving the said services and located in the taxable territory. Further, it also seeks to clarify that the persons registered solely in terms of clause (vi) of Section 24 of CGST Act shall be treated as unregistered person for the purpose of the said clause.

• Online information and database access or retrieval services

Clause (17) of section 2 of IGST Act is being amended to revise the definition of “online information and database access or retrieval services” to remove the condition of rendering of the said supply being essentially automated and involving minimal human intervention. 

• Place of supply in certain cases

Proviso to sub-section (8) of section 12 of the IGST Act is being omitted so as to specify the place of supply, irrespective of destination of the goods, in cases where the supplier of services and recipient of services are located in India.