Finance Minister Nirmala Sitharaman presented the Union Budget 2023 on February 1, 2023. While pre-election budgets often carry high expectations for significant reforms, this one largely repackaged existing initiatives with increased funding. However, salaried individuals received notable tax relief through various measures under the new tax regime, signaling the government's intention to promote its adoption and eventually phase out the old system. The budget also reintroduced an increase in customs duty on cigarettes after a three-year hiatus. Overall, the budget aimed to boost economic consumption, simplify compliance, support MSMEs and the middle class, and streamline the tax structure. It outlined seven key priorities: inclusive development, reaching the last mile, infrastructure and investment, unleashing potential, green growth, youth power, and strengthening the financial sector. Let's explore the details of Budget 2023.

Direct Tax Highlights

Deemed Income

Non-ordinarily resident individuals who receive gifts exceeding ₹50,000 from residents are now subject to taxation on such amounts.

Changes in the New Tax Regime

The new tax regime has been designated as the default option, with five primary adjustments designed to enhance its appeal. Taxpayers, however, retain the flexibility to choose the old tax regime.

• Revised Income Slabs for FY 2023-24 (AY 2024-25):

• Tax Rebate: A tax rebate has been introduced for incomes up to ₹7 lakhs under the new tax regime, making such income entirely tax-free.
• Standard Deduction: A standard deduction of ₹50,000 is now available under the new tax regime for salary income, effectively making ₹7.5 lakhs tax-free. For family pensions, the standard deduction is ₹15,000 or one-third of the pension, whichever is lower.
• Surcharge Reduction: The highest surcharge rate under the new tax regime has been lowered from 37% to 25% for individuals earning over ₹5 crore, reducing their effective tax rate from 42.74% to 39%.

Revised Presumptive Taxation Limits for FY 2023-24

*The increased limits are conditional on 95% of receipts being processed through online channels.

Start-ups

The only condition is that shareholders holding at least 51% of shares must maintain their shareholding in the year the loss is to be carried forward and set off.

Co-operative Societies

Several proposals were announced for co-operative societies:

• New Manufacturing Initiatives: The concessional tax rate of 15% has been extended to new co-operatives commencing manufacturing by March 31, 2024.
• Sugar Co-operatives: Sugar co-operatives can now claim previously disallowed expenditures from before 2016-17 by applying to the Assessing Officer.
• Section 194N: The TDS limit on cash withdrawals for co-operative societies has been increased to ₹3 crores.
• Cash Deposit Limit: The limit for cash deposits and loans by Primary Agricultural Co-operative Societies (PACS) and Primary Co-operative Agriculture and Rural Development Banks (PCARDBs) has been raised to a maximum of ₹2,00,000 per member.

Agniveer Corpus Fund

To support the Agnipath scheme, the following changes will be effective from April 1, 2023:

• Contributions made by an Agniveer to the Agniveer Corpus Fund will be eligible for tax deduction from their income.
• The Central Government's contribution to this fund will be treated as income for the Agniveer, also qualifying for deduction.
• Any amount received by an Agniveer or their nominee from the Agniveer Corpus Fund will be entirely tax-exempt.

Other Direct Tax Updates

• Leave Encashment: The tax exemption for leave encashment for non-government employees has been increased from ₹3 lakhs to ₹25 lakhs, covering a maximum period of 10 months at retirement under Section 10(10AA).
• TDS on EPF Withdrawal: The TDS rate on taxable EPF withdrawals has been reduced from 30% to 20%.
• Payment-Based Deduction: Payments to MSMEs must be made within the agreed timeframe (maximum 45 days) or 15 days if no agreement exists. Payments made outside this period can only be deducted as expenditure in the year of actual payment.
• No Penalty: No penalty will be imposed under Section 269SS or 269ST when a primary agricultural credit society or primary co-operative agricultural and rural development bank accepts or repays a loan to its members, or vice versa.
• Capital Gains Exemption Limit: The capital gains tax exemption under Section 54 to 54F is now capped at ₹10 crores; previously, there was no upper limit.
• Online Gaming: Net winnings from online gaming will be taxed at 30%. From July 1, 2023, TDS will be applied to such net winnings.
• Section 80G Donations: Donations to the Jawaharlal Nehru Memorial Fund, Indira Gandhi Memorial Trust, and Rajiv Gandhi Foundation will no longer qualify for 80G deductions.

Revised Time Limits for Completing Assessment

Indirect Tax Highlights

The indirect tax proposals in Budget 2023 aim to boost exports, promote domestic manufacturing, increase local value addition, and encourage green energy and mobility sectors.

Customs Duty Changes

The customs duties were revised for the following items:

• National Calamity Contingent Duty (NCCD) on specific cigarettes was increased.
• Customs duty on imported silver dore, bars, and articles was raised to match those on gold and platinum. Duty on jewelry made from precious metals (gold, silver, platinum) was also increased.
• Exemption from BCD on raw materials for manufacturing CRGO Steel, ferrous scrap, and nickel cathode was extended.
• Basic customs duty on seeds for producing Lab Grown Diamonds (LGDs) was reduced.
• Basic customs duty on electric kitchen chimneys was increased.
• Basic customs duty on parts of open cells for TV panels was reduced to encourage domestic television manufacturing.
• Customs duty exemption continues for importing capital goods and machinery used in manufacturing lithium-ion cells for electric vehicle batteries.
• Excise duty exemption was granted for GST-paid compressed bio-gas when used in blended compressed natural gas.
• Minor adjustments were made to basic customs duties, cesses, and surcharges on certain imported consumables like toys, bicycles, automobiles, and naphtha.

GST Changes

• Section 10 was amended to permit taxpayers to opt for the composition scheme even when supplying goods through e-commerce operators where TCS is collected under Section 52.
• Section 16 was revised, stating that if a recipient taxpayer fails to pay their supplier the invoice value (including GST) within 180 days of the invoice date, they must pay interest calculated under Section 50.
• Section 17(5) was updated to include expenditure on Corporate Social Responsibility (CSR) initiatives under ineligible Input Tax Credit (ITC).
• High sea sales and similar transactions, which are neither supplies of goods nor services, are now considered exempt. Consequently, proportional ITC cannot be claimed for such sales as per the revised Section 17(3).
• Sections 37, 39, 44, and 52 were amended to restrict taxpayers from filing GSTR-1 (outward supplies), GSTR-3B (summary returns), GSTR-9 (annual returns), and GSTR-8 (e-commerce operator return) for a tax period after three years from its due date.
• E-commerce operators now face a penalty of ₹10,000 or the tax amount involved (whichever is higher) if they:
  • Allow an unregistered person to supply goods or services through them, unless such person is exempt from GST registration.
  • Permit any registered person to make ineligible inter-state supplies through them.
  • Fail to provide accurate details in GSTR-8 for goods sold through them by persons exempt from GST registration.
• The following offenses have been decriminalized:
  • Obstructing an officer in their duties under the CGST Act.
  • Tampering with or destroying material evidence or documents.
  • Failing to provide required information or supplying false information under the CGST Act or Rules.
• Regarding the compounding of offenses, limits have been adjusted from 25% of the tax involved up to a maximum of 100% of the tax involved.
• A new Section 158A has been inserted into the CGST Act, enabling businesses to share GST data digitally with consent. It outlines the process and conditions for sharing information provided by a registered person on the GST portal with other notified systems, encompassing details from GSTR-1/3B/9 returns, registration applications, outward supply statements, e-invoice or e-way bill generation, and other prescribed particulars.

Inclusive Development Highlights

The government's