Budget 2023 has brought about a change in the slab rates u/s 115BAC. The Finance Bill seeks to change the existing slab rates, by exempting income up to ₹ 3,00,000 from any tax, and increasing each band of taxation by up to ₹ 3,00,000 up to an annual income of ₹ 15,00,000.
Further, there is an increase in the non-taxable income post rebate, now standing at ₹7,00,000 instead of the previous ₹5,00,000.
The threshold for claiming 100% rebate of income tax payable by Resident Individuals opting for the new tax regime has been increased from ₹ 5,00,000 to ₹ 7,00,000, resulting in tax saving for the individual up to ₹ 25,000 annually.
The Finance Bill proposes to insert a new section 115BAE which would envisage providing concessional tax rate@ 15% to new manufacturing cooperative societies set up on or after April 1, 2023. Presently, co-operative societies can avail benefit of concessional tax rate of 22% under Section 115BAD of the Act.
The Government has amended Section 9 of the Act in order to extend the deeming provisions of the Act in order to entail that any sum of money exceeding ₹ 50,000 received by either a ‘non-resident’ or ‘resident but not ordinarily resident in India’ from a person resident in India without any consideration shall be deemed to accrue or arise in India. This amendment envisages including gifts received by person who is ‘resident but not ordinarily resident’ from person resident in India to be brought within the ambit of Income Tax.
The Government has inserted a subsection (46A) to Section 10 of the IT Act in order to settle the ambiguity of providing exemption with respect to commercial receipts for providing public services. This is in tune with the ruling of the Hon’ble Supreme Court in Assistant Commissioner of Income Tax (Exemptions) vs Ahmedabad Urban Development Authority, in Civil Appeal No. 21762 of 2017. The Apex Court had held that amounts or any money whatsoever charged for public services are prima facie to be excluded from the ambit of business or commercial receipts as their objects are essential for advancement of public purposes and should be exempted under Section 10(46) of the Act.
Section 17 pertaining to valuation of residential accommodation provided to employees rent-free or on concession basis as perquisites is sought to be amended in order to bring it in uniformity with the methodology in place to compute value of rent-free accommodation as per Rule 3 of the IT Rules.
Section 54 and 54F which allow deductions from computing tax on transfer of long-term capital assets if the amount of such capital gains or sale consideration is re-invested in a house property, did not currently contain any limits to such deduction. The Finance Bill proposes to limit these deductions to re-investment of up to ₹ 10 crores. Amounts in excess of the stipulated amount would be subject to long term capital gains.
With the proliferation of digital gold as an investment vehicle over the past year, the Finance Bill has brought about some clarity on various taxation aspects pertaining to the same. It has been rightly provided that the transfer of gold to Vault Manager, or release of gold by the Vault Manager, is not to be treated as transfer, as it is just the act of converting gold into a digital form or vice-versa. Further, since digital gold, specifically Electronic Gold Receipts or EGR’s have been classified as securities under the Securities Contract Regulation Act, 1956 vide a Gazette Notification of December 24, 2021, transfer of EGR’s to third person will attract capital gains tax. The period of holding of EGR for computation of capital gains tax would extend to the period where the gold was held by such person.
100% deduction has been envisaged under new section 80 CCH for the amounts deposited by a tax payer in the Agnipath Scheme who is a participant in the Scheme and who subscribes to the Agniveer Corpus Fund on or after November 1, 2022.
Section 80IAC of the IT Act has been amended in order to benefit start-ups by extending the period of incorporation for eligible start-ups to April 1, 2024, thereby increasing the time-frame for availing tax holiday. The benefit of carry forward of losses on change in share-holding pattern has been extended to 10 years from the existing 7 years
Turnover limits for MSME’s and Professionals for presumptive taxation has have been increased to INR 30 million (from INR 20 million) and INR 7.5 million (from INR 5 million) respectively.
With the proliferation of online gaming, a new taxation regime has been introduced wherein 30% tax has been levied as well as withholding tax on net winnings.
Section 50AA has been introduced which specify Market Linked Debentures to be taxed as short term capital gains (irrespective of period of holding).
INDIRECT TAX HIGHLIGHTS
Restrictions have been introduced on availability of GST input tax credit in respect of CSR expenses. This goes in the teeth of the favorable rulings by the Advance Rulings Authorities (in case of Bambino Pasta & Dwarikesh Sugar) on eligibility of credit related to CSR activity no longer holds good. This inflates CSR expenditure by the rate of tax applicable on relevant procurements, thereby reducing funds available for actual CSR expenditure.
Time limits have been introduced for furnishing of various returns/statements under various Forms under the GSTR regime.
Penalty proposed on E-Commerce operators dealing with unregistered persons or composition taxpayers.
Registered person engaged in supply of goods through electronic commerce operator who is required to collect tax at source under Section 52 of the CGST Act was earlier not eligible to opt for composition scheme. Now, such persons will be made eligible to avail the composition scheme.
A new section 158A in the CGST Act has been proposed which entails consent based sharing of information furnished by the registered person can be shared with other systems, as may be notified.
CENTRAL SALES TAX ACT
Section 19 of the CST Act which provides for functions, powers and composition of the Central Sales Tax Appellate Authority is proposed to be substituted. CESTAT will have jurisdiction to adjudicate any dispute relating to inter-state sales.
Certain Conditional exemptions which had been provided an automatic sunset period of two years have now been excluded from such automatic expiry such as Multilateral or bilateral trade agreements, privileges of constitutional authorities etc.
Thematic tariff changes have been made in various items in order to promote domestic manufacturing and enhancing domestic value addition.
Contracts regulated by IFSCA have been recognized as valid contracts in derivatives, which will enhance accessibility for trading.
Various changes have been introduced in order to increase the scope of ease of doing business in India by not only reducing compliances but also simplifying processes.
Proposal to set up a Central Processing Centre (CPC) for faster response to companies, through centralized handling of various forms filed with field offices under the Companies Act, 2013.
Nonresidents are now included within the ambit of Section 56(2)(viib) in respect of issuance of shares by a private company.
Outlay of ₹ 7,000 crore has been done for Phase 3 of the E-courts project.
Voluntary Settlement Scheme with standardized terms will be introduced to settle contractual disputes of the Government and Government undertakings, involving challenge of an arbitral award before a court. The settlement terms would be graded depending on the pendency level of the dispute.
For the Micro, Small & Medium Enterprises (“MSME”), there is an intention to introduce ‘Vivad se Vishvas II’ for settling contractual disputes with the Government in cases where the arbitral award is challenged before the court of law.
Agriculture Accelerator Fund is proposed to be set up in order to encourage startups in the agricultural sector by young entrepreneurs in the rural sector.
Initiatives for the promotion of Artificial Intelligence Industry have been taken like creation of Centers of Excellence.
All powers under the SEZ Act have been vested in the IFSCA, thereby ending the regime of dual regulation.
A single-window IT system for registration and approval from IFSCA, SEZ authorities, GSTN, Reserve Bank of India (RBI), Securities and Exchange Board of India (SEBI) and Insurance Regulatory Development Authority (IRDA) shall be set up.
Tax Benefits to funds relocating to IFSC, GIFT City can now be availed up to March 31, 2025 as against the earlier deadline of March 31, 2023.
BANKING AND FINANCE
Amendments are proposed to the Banking Regulation Act, the Banking Companies Act and the Reserve Bank of India Act to enhance investors’ protection and improve bank governance.
KYC process shall be simplified to adopt a ‘risk-based’ approach rather than a ‘one-size-fits-all’ approach. This shall entail amendments to Prevention of Money Laundering Act and the RBI Master Direction on KYC for regulated entities.
Financial Sector Regulators are required to undertake comprehensive review of existing regulations to simplify, ease and reduce cost of compliance.
Public consultation has been introduced in the process of regulation making and subsidiary direction issue.
Insolvency and Bankruptcy
Criminal Liability upon a liquidator who fails to give notice or set aside the amount as required under the IBC law sub-section(1) of Section 178 has been removed. Effectively, the provision has been de-linked from Section 276A of the Income Tax Act.