Significant Provisions and Key Changes from India's Union Budget 2023

The Finance Minister, Nirmala Sitharaman, presented the Union Budget 2023 on February 1, 2023. While pre-election budgets often generate high expectations for significant reforms, this one largely repackaged existing schemes with increased funding. However, salaried individuals received a notable tax break through new tax regime relief measures, suggesting a government push towards its adoption. A reinstated duty hike on cigarettes, absent for three years, was also observed. The budget introduced various provisions aimed at boosting economic consumption, simplifying compliance, supporting MSMEs and the middle class, and streamlining the tax system. The seven main priorities outlined in the budget included inclusive development, reaching the last mile, infrastructure and investment, unleashing potential, green growth, youth empowerment, and financial sector development.

Budget 2023: Direct Tax Amendments

Deemed Income

Non-ordinarily resident individuals are now required to pay tax on gifts exceeding ₹50,000 received from Indian residents.

New Tax Regime Modifications

The new tax regime is now the default option. Five key changes aim to enhance its appeal, though taxpayers can still opt for the old regime.

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

| Income Slabs | Income Tax Rate | |---| | Up to ₹3,00,000 | Nil | | ₹3,00,000 - ₹6,00,000 | 5% on income which exceeds ₹3,00,000 | | ₹6,00,000 to ₹9,00,000 | ₹15,000 + 10% on income more than ₹6,00,000 | | ₹9,00,000 to ₹12,00,000 | ₹45,000 + 15% on income more than ₹9,00,000 | | ₹12,00,000 to ₹15,00,000 | ₹90,000 + 20% on income more than ₹12,00,000 | | Above ₹15,00,000 | ₹150,000 + 30% on income more than ₹15,00,000 |

Tax Rebate

A tax rebate applies to incomes up to ₹7 lakhs under the new regime, making it entirely tax-free for these individuals.

Standard Deduction

• Salaried Income: A standard deduction of ₹50,000 is now available under the new tax regime, effectively making ₹7.5 lakhs tax-exempt.
• Family Pension: A standard deduction of ₹15,000 or one-third of the pension, whichever is lower, applies to family pensions.

Reduced Surcharge

The highest surcharge under the new tax regime has been lowered from 37% to 25% for individuals earning over ₹5 crore, decreasing their effective tax rate from 42.74% to 39%.

Revised Presumptive Taxation Limits for FY 2023-24

*The increased limits require 95% of receipts to be through online channels.

Start-ups

*The only condition is that shareholders holding at least 51% of shares must maintain this holding in the year losses are carried forward and set off.

Co-operative Societies

Key proposals announced for co-operative societies include:

• New Manufacturing Initiatives: The government has extended the benefit of a concessional tax rate of 15% to new co-operatives that commence manufacturing by March 31, 2024.
• Sugar Co-operatives: Any expenditure that was disallowed to sugar co-operatives prior to 2016-17 can now be claimed by making an application 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: Limits for cash deposits and loans by Primary Agricultural Co-operative Societies (PACS) and Primary Co-operative Agriculture and Rural Development Banks (PCARDBs) increased to a maximum of ₹2,00,000 per member.

Agniveer Corpus Fund

To promote the Agnipath scheme, the following changes will take place from April 1, 2023:

• Contributions made by an Agniveer to the Agniveer Corpus Fund will be considered a tax deduction from their income.
• The Central Government's contribution to the Agniveer Corpus Fund will be considered as income for the Agniveer, which will also be eligible for deduction.
• Any amount received by an Agniveer or their nominee from the Agniveer Corpus Fund will be tax-free.

Other Direct Tax Updates

• Leave Encashment: The exemption threshold for leave encashment has been increased to ₹25 lakh from ₹3 lakh for non-government employees. Thus, at the time of retirement, leave encashment of up to ₹25 lakhs for a maximum period of 10 months is tax-free under Section 10(10AA).
• TDS on EPF Withdrawal: The TDS rate has been reduced to 20% from 30% on taxable withdrawal of EPF.
• Payment Based Deduction: Payments to MSMEs must be made within the time frame agreed upon in writing, with a maximum limit of 45 days. If there is no written agreement, the time frame is 15 days. Any payment made outside this time frame can only be deducted (as expenditure) in the year it is actually paid.
• No Penalty: Where a loan is accepted or repaid by a primary agricultural credit society or a primary co-operative agricultural and rural development bank to its members or vice versa, no penalty would arise under Section 269SS or 269ST.
• Capital Gains Exemption limit: The capital gains tax exemption under Section 54 to 54F is restricted to ₹10 crores. Earlier, there was no threshold.
• Online Gaming: Net winnings from online gaming will be taxed at 30%. From July 1, 2023, TDS will be withheld on such net winnings.
• Section 80G Donations: Donations made to the Jawaharlal Nehru Memorial Fund, Indira Gandhi Memorial Trust, and Rajiv Gandhi Foundation will no longer be eligible for 80G deductions.

Revised time limits for completing assessment

| Assessment | Time Limit | |---| | Scrutiny assessment & best judgment assessment | Within 12 months from the end of the assessment year (additional 12 months if case referred to Transfer Pricing officer) | | Scrutiny assessment & best judgment assessment in case of updated return | Within 12 months from the end of the financial year in which such return is filed | | Fresh assessment post the ITAT order or revision order in case of updated return | Within 12 months from the end of the financial year in which the order is passed | | Assessments pending on date of initiation of search or requisition being made | Additional 12 months from regular due date |

Budget 2023: Indirect Tax Amendments

Customs Duty Changes

The indirect tax proposals made in Budget 2023 promote exports, encourage domestic manufacturing, enhance domestic value addition, and boost green energy and mobility.

The customs duties were revised on the following list of items:

| Items of which customs duty was revised | Impact/Benefit | |---| | Imported capital goods for lithium-ion battery manufacturing | For greener mobility | | Imported mobile camera lens | Deepening value addition | | Denatured ethyl alcohol | Benefits the chemical industry | | Primary inputs for making shrimp feed | Increase in marine exports | | Seeds for manufacturing lab-grown diamonds | Promotes exports | | Extending the concessional Basic Customs Duty (BCD) on copper scrap | Increasing raw material availability for MSMEs | | Compounding rubber to bring it at par with natural rubber | To curb duty circumvention |

Specific Customs Duty Adjustments

• National Calamity Contingent Duty (NCCD) on specified cigarettes was increased.
• The customs duty for importing silver dore, bars, and articles has been increased to align them with that on gold and platinum. Further, the duty on jewelry made from precious metals including gold, silver and platinum is increased.
• Extension is granted to the exemption from BCD on raw materials for manufacturing CRGO Steel, ferrous scrap and nickel cathode.
• FM has reduced the basic customs duty on seeds used to manufacture Lab Grown Diamonds (LGDs).
• The basic customs duty on electric kitchen chimneys has been increased.
• FM reduced the basic customs duty on parts of open cells of TV panels to encourage domestic manufacturing of television.
• The customs duty exemption is being continued for the import of capital goods and machinery that are used for manufacturing lithium-ion cells for batteries in electric vehicles.
• Exemption is also granted for excise duty on GST-paid compressed bio-gas used in blended compressed natural gas.
• Minor changes are carried out in the basic customs duties, cesses and surcharges on certain consumables imported, such as toys, bicycles, automobiles and naphtha.

GST Changes

• Section 10 stands amended such that a taxpayer can opt into the composition scheme even if they are supplying goods through e-commerce operators where TCS is collected under Section 52.
• Section 16 is amended for a condition that in cases where a recipient taxpayer fails to pay to their supplier invoice value including the GST within 180 days from the date of issue of invoice, then they must pay with interest computed under Section 50 on it.
• Section 17(5) is revised to include another item under ineligible ITC: Expenditure on CSR initiative for corporates.
• High sea sales and similar transactions neither supply of goods or services are considered exempt and hence ITC proportional to such sales cannot be claimed as per revised Section 17(3).
• Sections 37, 39, 44, and 52 are amended to restrict taxpayers from filing GSTR-1 (return for outward supplies), GSTR-3B (summary returns), GSTR-9 (annual returns), and GSTR-8 (e-commerce operator) for a tax period after the expiry of three years from the due date.
• Penalty of Rs.10,000 or an amount equivalent to the amount of tax involved, whichever is higher, will be charged for e-commerce operators who:
• Allow an unregistered person to supply goods or services or both through them except where such person is exempted from GST registration.
• Allow any registered person from making inter-state supply of goods/services through them where they are ineligible for it.
• Do not furnish accurate details in the GSTR-8 of any sale of goods made through them by a person exempted from obtaining GST registration.
• The following offences have been decriminalised:
• Where a person obstructs or prevents an officer in the discharge of their duties under the CGST Act,
• Where a person tampers with or destroys material evidence or documents,
• Where a person fails to supply information that is required to be supplied under the CGST Act or Rules or supplies false information.
• In regard to the compounding of offences, the limits have been changed to 25% of the tax involved up to a maximum amount of 100% of the tax involved.
• A new Section 158A has been inserted in the CGST Act to allow businesses to now share GST data digitally with consent. It prescribes the manner and conditions for sharing information furnished by a registered person on the GST portal with such other systems as may be notified, as declared in:
• Returns filed under GSTR-1/3B/9, or
• Application of registration, or
• Statement of outward supplies, or
• Generation of an e-invoice or e-way bill, or
• Any other details, as may be prescribed.

Budget 2023: Inclusive Development

The government's policy of "Sabka Saath Sabka Vikas" has benefited various sections of society, including women, SCs, STs, OBCs, and other underprivileged groups. The budget will continue to build on those efforts.

Budget 2023: Reaching the Last Mile

• Building on the success of the Aspirational District program, the government launched a new initiative.
• Proposed an outlay of ₹15,000 crores for the newly launched Pradhan Mantri PVTG (Primitive Vulnerable Tribal Group) over the next 3 years to improve socio-economic conditions of these vulnerable tribal groups.
• Outlay for PM Awaas Yojana was enhanced by 66% to over ₹79,000 crores.
• In the next three years, the center plans to hire 38,800 teachers and support staff for 740 Eklavya Model Residential Schools, which will cater to 3.5 lakh tribal students.

Budget 2023: Infrastructure and Investment

• Proposed capital expenditure is increased by 33% to ₹10 lakh crore.
• A 50-year interest-free loan to state governments will be extended for one more year, resulting in an outflow of ₹1.3 lakh crore.
• A planned outlay of ₹2.4 lakh crore is directed towards railways.
• Fifty airports, heliports, water aerodromes, and advanced landing grounds will be revived to enhance regional air connectivity.
• An Urban Infrastructure Development Fund (UIDF) will be established with an outlay of ₹10,000 crore per annum to create urban infrastructure in Tier 2 and Tier 3 cities.

Budget 2023: Unleashing the Potential

• Vivad se Vishwas I: During the Covid period, if MSMEs failed to fulfill their contracts, the government and its undertakings will refund 95% of the forfeited amount relating to bid or performance security.
• KYC and PAN: The KYC process will be streamlined and the PAN card will be adopted as a single identifier.
• National Data Governance Policy: A National Data Governance Policy will be introduced, providing access to anonymized data for the purpose of research and innovation by startups and academia.
• Ease of Doing Business: To improve the ease of doing business in India, 39,000 compliances have been reduced and 3,400 provisions have been decriminalized.
• AI Centres of Excellence: Three centers of excellence for Artificial Intelligence (AI) will be set up in top educational institutions to achieve the vision of "Make AI in India and Make AI work for India."
• Unified Filing Process: This will eliminate the need for filing the same information with different government departments. People will now be allowed to voluntarily share the information with other government agencies over a common portal.

Budget 2023: "Green Growth"

The government included "Green Growth" among the seven focus areas of this year's Budget, with the aim of achieving net zero carbon emissions in India by 2070. To support this, the following announcements were made:

• Green Hydrogen: ₹19,700 crore allocated for the National Green Hydrogen Mission, which will promote a shift to low carbon intensity in the economy, decrease reliance on fossil fuel imports, and establish the country as a technology and market leader in this growing industry.
• Energy Transmission: Proposed construction of a transmission system of 13 GW renewable energy from Ladakh with a total investment of ₹20,700 crore, including central support of ₹8,300 crore.
• Green Credit Programme: A green credit program was introduced to encourage environmentally friendly behavior under the Environment Protection Act.
• Vehicle Replacement: Funds allocated for scrapping old vehicles owned by the central government, and support will also be provided to states in replacing their old vehicles and state ambulances.
• Energy Transition: ₹35,000 crores allocated for crucial capital investments towards achieving energy transition, reaching net zero targets, and enhancing energy security.
• Battery Storage: Viability gap funding introduced for battery energy storage systems with a capacity of 4,000 MWh.

Budget 2023: Youth Power

• The PM Kaushal Vikas Yojana 4.0 will be launched to skill lakhs of youth, covering new-age courses.
• The National Apprenticeship Promotion Scheme will provide stipends to 47 lakh youth over the next three years through Direct Benefit Transfer (DBT).

Budget 2023: Financial Sector

• A revamped credit guarantee scheme for MSMEs will be implemented starting 2023, with an infusion of ₹9,000 crore. This will provide additional collateral-free guaranteed credit of ₹2 lakh crore. Further, the cost of the credit will be reduced by nearly 1%.
• To improve business operations in GIFT IFSC, the government will implement a unified IT system for registration and approval from SEZ authorities, IFSCA, GSTN, SEBI, RBI and IRDAI.
• A Central Processing Center will be established to provide quicker responses to businesses through centralized handling of various forms under the Companies Act.
• An integrated IT portal will be established which will help investors to reclaim unclaimed shares and unpaid dividends from the Investor Education and Protection Fund Authority (IEPFA).
• Mahila Samman Savings Certificate: A one-time deposit scheme for women with a maximum deposit of ₹2 lakh and a tenure of up to two years has been introduced. This scheme is valid till March 2025 and will fetch a fixed interest rate of 7.5%.
• Senior Citizen Savings Scheme (SCSS): The maximum investment limit has been raised from ₹15 lakh to ₹30 lakh, with an interest rate of 8% for the quarter ended March 31, 2023.
• Postal Monthly Income Scheme (POMIS): Investors under this scheme too saw an increase in deposit limit from ₹4.5 lakh to ₹9 lakh for single accounts and ₹9 lakh to ₹15 lakh for joint accounts.

Budget 2023: What Became Cheaper and Costlier?

Budget 2023: Key Figures and Allocations

• FY23 GDP growth estimated at 7%.
• ₹2,200 crore to be spent on high-value horticulture crops as part of the Atmanirbhar Clean Plant Programme to enhance the supply of superior, disease-free planting material.
• The agricultural credit target will be increased to ₹20 lakh crore.
• While the current fiscal deficit is 6.4% of GDP, the government aims to bring it down below 4.5% of GDP by 2025-26.
• The government has stated that it will offer a 2% interest subsidy to help farmers obtain short-term loans of up to INR 3 lakh at an effective interest rate of 7% per year.
• The Reserve Bank of India (RBI) has increased the limit for collateral-free agriculture loans from INR 1 lakh to INR 1.6 lakh.

Budget 2023 Expectations

According to the income tax department, salaried individuals comprise a large percentage of taxpayers. In 2022, nearly 50% of the ITRs filed were ITR-1 by salaried class individuals. But the salaried individuals had very little to cheer about in the last few budgets except the new tax regime. They have a few expectations they hope will be met. Rightly so, because the last few years have been difficult for them given the harsh impact of layoffs, pay cuts, rising inflation and the fear of global recession.

Potential changes that may be included in the budget for the salaried class are:

• Tax Exemption Limit: The current tax exemption limit of ₹2.5 lakh has stayed the same since 2014-15. It should be increased to ₹5 lakh, considering factors such as inflation.
• Increased Standard Deduction: The government may raise the standard deduction limit from ₹50,000 to ₹1,00,000 in this budget.
• Decluttering Section 80C: Section 80C of the Income Tax Act currently offers a wide range of investment options. However, the deduction limit is restricted to ₹1.5 lakh. Since the last review of this section in 2014, incomes have risen significantly, leaving limited scope for tax-saving investments. The government should consider reviewing the investment options or raising the deduction limit from ₹1.5 lakh.
• Deductions for Medical Insurance Premium: The government may consider increasing the deduction limits under Section 80D from ₹25,000/₹50,000 to ₹50,000/₹1 lakh, respectively, due to high medical expenses and hospitalisation costs.
• Reduced Surcharge Rate: The surcharge rate of 37% brings the tax to 42.744% for people earning more than ₹5 crores. It is time for the government to rationalise and revisit the surcharge rates.
• Validity of other Deductions: March 31, 2023 is the last date to claim deductions like 80EEA (interest on housing loan) and 80EEB (interest on electric vehicle loan). We can expect to see a 2-year extension on these deductions.
• Reviewing Children's Education and Hostel Allowance: The Child Education and Hostel Allowance have remained the same at ₹100 and ₹300 per child per month for over 20 years. The government should consider raising the limits to ₹1,000 and ₹3,000 per child per month, respectively.

More details can be found on Budget 2023 expectations of various industries.

Key Highlights of Budget 2022

The key highlights of Budget 2022 embraced trust-based governance, introducing ITR-U in Budget 2022, allowing taxpayers to declare their undeclared income or update their return within two years from the end of the relevant assessment year. The tax rates did not change in the financial year 2022-23, but we saw some aggressive moves that discouraged crypto transactions in India.

A 30% tax was introduced on Virtual Digital Assets (VDA) like cryptocurrency without allowing the losses of one cryptocurrency to be offset against income from other cryptocurrencies. Also, no deductions were allowed besides the acquisition cost. This meant that crypto investors paid taxes on the gains, but in the event of losses, they solely bore the brunt.

Investors and traders also took a 1% cut in the form of TDS on payments exceeding ₹10,000 per annum on VDAs. The Finance Act 2022 added Section 194S, where 10% TDS was introduced for persons providing benefits or perquisites over ₹20,000 per annum, particularly impacting doctors, music bands, and influencers.

A host of amendments were made under the GST law. Significant ones include sequential filing of GST returns, restriction to Input Tax Credit (ITC) claims to those that appear only in Form GSTR-2B of the buyer and adding a condition that filing of GSTR-1 is compulsory before filing GSTR-3B of the same period. The annual time limit for amendments to sales invoices/debit-credit notes and ITC claims belonging to a financial year was revised as November 30 of the following year.

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