Tax and Policy highlights announced in the Union Budget 2023

On Wednesday, 1 February 2023, the Hon'ble Finance Minister, Nirmala Sitharaman, presented Union Budget 2023 in the Lok Sabha.

We bring you the consolidated tax and policy highlights on tax and policy amendments announced by the Hon'ble Finance Minister in the budget.

With India being recognised as a ‘Bright star’ in its 75th year of independence, Budget 2023 focused on:

• Uplifting the farmer community with strong thrust on the Agriculture sector and rural development;
  
• Slew of policies and outlays aimed at skilling, digitisation and technology infusion, innovation and infrastructure growth;
  
• Green growth with increased capital outlay on ‘waste to wealth’ plants and launch of PM-PRANAM scheme to promote usage of alternative fertilizers
  
• Relief for salaried & middle class taxpayers by rationalising the concessional tax regime and reduction of highest surcharge rate.
  
• Simplification of indirect taxes to deliver higher exports, higher domestic manufacturing, more value addition in economy and green energy & mobility
  

Macro fiscal

• 10.5% nominal GDP growth rate assumed for FY24 (BE)
• 6-6.8% real GDP growth assumed for FY24 (Economic survey)
• 10.4% growth in gross tax revenues with an assumed buoyancy of 1 for FY24
• 37.4% growth in capital expenditure in FY 24
• 5.9% fiscal deficit target for FY24

Corporate Tax

• No changes to corporate tax rates
• Deduction of payments made to MSMEs beyond statutory timeline to be allowed only on actual payment basis
• No set off of unabsorbed depreciation and brought forward business loss for certain NRs taxable under presumptive taxation regime
• Sunset date for incorporation of start-ups to be eligible for tax holiday extended from 31 March 2023 till 31 March 2024
• Withdrawal of exemption from withholding tax on payment of interest on listed debentures paid to resident
• New provision proposed for taxation of net winnings from online games and related withholding obligation
• New mechanism provided for claim of withholding tax credit in respect of income offered to tax in past year but corresponding tax is withheld by payer in subsequent year

Indirect tax

• Goods and Services Tax
• ITC will not be available in respect of goods or services used for activities relating to corporate social responsibility.
• Filing of returns and statements will not be allowed after three years from the relevant due dates.
• Minimum threshold for launching prosecution will be increased from INR1 crore to INR2 crore except in case of issuance of invoice without supply.

Customs

• As part of rate rationalization of customs duty rate structure, BCD, SWS and AIDC rates will be reduced on a number of goods.
• Validity period of two years imposed on certain customs exemptions, will not be applicable to identified categories such as imports under FTAs, re-imports, exemptions under FTP schemes, personal baggage.
• Settlement Commission to pass order within nine months from the last day of the month in which application is made, or else the proceedings shall abate.

Transfer Pricing

• Time limit to furnish TP documents to TPO has been reduced from 30 days to 10 days

Transaction tax

• Angel tax extended to funds from non-residents as well
• Benefit of carry forward of business loss to eligible ‘start-ups’ will not be denied within 10 years (extended from seven years) from the year of incorporation subject to certain conditions
• Distribution (other than interest, dividend, rental income or capital gains), say, in the nature of ‘repayment of debt’, by business trust to unit holder to be taxed as 'other income’ in hands of unit holders. Such distribution to be reduced by cost of acquisition where units are redeemed
• Carry forward of accumulated losses and unabsorbed depreciation allowed on merger of erstwhile public sector companies subsequent to strategic disinvestment by the Government or public sector company where merger takes place within five years from prescribed date

Personal tax

• Concessional Tax Regime will be regarded as the default tax regime while an option to consider existing tax regime will be available to the taxpayers
• Benefits for Taxpayers opting for Concessional Tax Regime:
  • Enhancement in the basic exemption limit to INR3 lakhs from the existing limit of INR2.5 lakhs
  • Rebate limit enhanced to INR7 lakhs from the existing limit of INR5 lakhs
  • Introduction of standard deduction of INR50,000 
  • Maximum surcharge rate reduced from 37% to 25% in case of taxpayer having taxable income exceeding INR 5Cr (maximum marginal rate reduced from 42.744% to 39%)
• Tax Collected at Source (TCS) has been enhanced to 20% (from existing 5%) on certain foreign remittances (except education & medical treatment), without any threshold limit
• Leave encashment limit announced to increase from existing INR 3Lakhs to INR25 lakhs