Understanding Changes in Income Tax Under Budget 2023-24
Despite ongoing global economic uncertainties,India is a strong performer and is well-positioned to grab and capitalize on the numerous economic possibilities that the next years will bring and provide.
The GDP growth stays robust at 7% in the fiscal year 2023 and is expected to remain above well in the fiscal year 2024. Tax collections increased significantly in the current fiscal year, and the government is optimistic about reducing the budget deficit to less than 4.5 percent by 2025-26, which is remarkable growth.
With this backdrop, it’s no wonder that the budget prioritizes both:
- continuity and
- stability on a variety of fronts, including taxation.
The Government’s ambitious economic plan is focused on three important areas which are as provided:
- providing opportunities for citizens,
- providing a strong impetus to development and job creation, and
- strengthening macroeconomic stability.
Agriculture and infrastructure are two of the budget’s numerous focus sectors. There is a continued effort and drive to improve:
- digital public infrastructure in agriculture,
- enhance farmer financing, and
- promote the cooperative sector.
Infrastructure development is correctly viewed by the government as a generator of growth and jobs which has been evident in record capital outlays this year. It increased by 33% to INR10 lakh crore. There is also a push to increase private investment in this industry.
Along with this, the Capital expenditures for railways have also increased significantly throughout the years.
Now let’s enter our analysis on the Budget 2023-24 and the Income Tax!
As you are aware, the common man / middle class, a group of the most industrious people who pay their taxes to the government honestly, has now received their dues from the BJP government after an 8-year wait. We’ve been waiting for these tax benefits for a long time. In this year’s Budget Speech, the Honorable Finance Minister of India began with the government’s achievements since 2014. She covered the vision for Amrit Kaal – an empowered and inclusive economy and kept this Budget’s priorities at:
- inclusive development,
- infrastructure and investment,
- Green growth, and
- Youth Power.
This is a budget for development, and the Hon’ble Finance Minister has supplied and allocated monies for all sectors of the country.
Agriculture, of course, is our key sector, and it, as well as:
- health services,
- digital India, and
so on, receive special emphasis in this Budget. The administration has allotted funding for our defence budget while also keeping Chinese infiltration in neighbouring nations in mind.
The government has also considered the most industrious and honest taxpayers, the Indian middle class. We are requesting a modification in tax slabs as well as an increase in the threshold limitations for different refunds and deductions.
Through this Budget, the government has done a lot to appease a great number of people. This is an excellent, development-oriented budgetthat will truly aid us in the growth we are all dreaming of
Analysis of Some Changes in Income Tax in the Budget
This year’s budget provides an additional benefit of approximately INR 37,500 only to new tax slabs for Individual Tax, subject to the optional foregoing of various deductions and exemptions as per the new tax regime.
In the future, this new regime will be the default.
This means that, in addition to the approximately INR 7,500 benefits in the new tax regime announced in Budget 2020, the total benefits in the New Tax Regime vs. Old Regime are now INR 45,000. These benefits will be available only to Salaried employees with total incomes equal to or greater than INR 15 lacs and no interest on housing loan benefits to be taken.
In practice, we can say that the old regime is no longer necessary or beneficial when compared to the new tax regime.
|Finance Budget 2023-24|
|New Tax Regime|
|Particulars||New Tax Regime||Old Tax Regime|
|Income Tax Slab||Proposed||New Tax Regime before Budget 2023||Old Tax Regime|
|Annual Gross Total Income||15,00,000||15,00,000||15,00,000|
|1. Standard Deductions||Nil||Nil||-50,000|
|2. Section 80 C||Nil||Nil||-1,50,000|
|3. Section 80 D||Nil||Nil||-25,000|
|Particulars||New Tax Regime||Old Tax Regime|
|Income Threshold||Tax % – Proposed||Tax % – New Tax Regime before Budget 2023||Tax % – Old Tax Regime|
|0.00 – 2,50,000||0%||0%||0%|
|Add: Higher Education Cess – 4%||6,000||7,500||7,800|
|Gain from New Tax Regime V/s. Old Tax Regime||46,800|
|Gain from New Prior to Budget Tax V/s. Old Tax Regime||7,800|
Exemptions And Deductions Not Claimable Under The New Tax Regime
Here are some of the major deductions and exemptions listed thatyou cannot claim under the new taxregime:
- The standard deduction under Section 80TTA/80TTB is a professional tax and entertainment allowance on salaries.
- Leave Travel Allowance (LTA).
- House Rent Allowance (HRA).
- Minor child income allowance.
- Helper allowance.
- Children’s education allowance.
- Other special allowances as per Section 10(14).
- Interest on housing loan on the self-occupied property / vacant property as per Section 24.
- Chapter VI-A deduction as per Section 80C, 80D, 80E, and so on, except Section 80CCD(2) and Section 80JJAA.
- The deduction claimed under section 80CCD(1B) can also not be claimed under the new tax regime.
- Exemption or deduction for any other perquisites or allowances Deduction from family pension income.
What Exemptions And Deductions Are Available During The New Regime?
For getting a tax break you can:
- Transport allowances are provided to a specially-abled person.
- Conveyance allowance received for meeting the conveyance expense incurred as part of the employment task / the job you are hired for.
- Any compensation received for meeting the cost of travel on either transfer / tour.
- Daily allowance received for meeting the ordinary and regular charges or expenses which is incurred by you on account of absence from the normal or regular place of duty.
- Deduction for employer’s contribution to National Pension Scheme / NPS account as per Section 80CCD (2).
- Deduction for additional employee cost as per Section 80JJA.
Other Changes or Increase in Income Threshold Limit
In the New Tax Regime, the government increased the tax threshold limit from INR 2.50 Lakhs to INR 3.00 Lakhs. This implies that if you use Old Tax Regime with rebates and deductions, you will not be qualified for this level and your maximum / threshold limit will be INR 2.50 Lakhs.
Tax Rebate Up To Rs. 7 Lakhs
Previously, the government gave anINR 12,500/- Tax Rebate under Section 87A of the Income Tax Act, 1961 on the income of up to INR 5,00,000/-.
In the Old Tax Regime, there is no rise in the threshold.
The threshold limit has now been raised to INR 7 Lakhs. It indicates that under the New Tax Regime, you do not have to pay a tax of INR 25,000 if your income is equal to or less than INR 7 Lakhs.
If you, like the majority of other taxpayers, have chosen the old tax regime, with-exemptions tax system, which provides tax advantages under section 80C among other things, you will not be entitled to this refund on the increased income limit. Only if your salary is less than INR 5 lakh will you be eligible for a refund under the previous regime.
Those with a Gross Total Salary Income of INR 15.50 Lakhs or more would receive INR 52,500/- per annum. In addition to the fundamental exemption limit, the standard deduction is a base amount that is not subject to tax, offering assistance to all taxpayers.
A deduction is not the same as a rebate, which is a partial reimbursement of tax payable. Income tax deductions can be claimed against income, whereas rebates can be claimed against tax payable.
In the 2018 budget, a “standard deduction” of INR 40,000 is proposed to replace the INR 19,200 travel allowance and INR 15,000 medical expenditure, which were eliminated in the 2005-06 year. From FY 2023-24, the Standard Deduction has been enhanced from INR 50,000/- to INR 52,500/-.
In the new tax regime, the highest surcharge rate is cut from 37% to 25%. Resulting in which now the maximum tax rate would be reduced to 39%. The maximum surcharge rate of 37%, which was applied to those earning more than INR 5 crore, has been reduced to 25%. This implies that beginning from the 1st of April, 2023, every income above INR 2 crore will be subject to a 25% surcharge. Sitharaman stated in her budget address for 2023-24 that the highest tax rate in the country is 42.74 percent.
Encashment of Leave on Retirement
The tax exemption ceiling has been raised from INR 3 lacs to INR 25 lacs. Let us provide an example to better understand leave encashment exemption:
Mr. A is leaving the company after 15 years of service.
He was entitled to 30 days of paid leave every year from his company, for a total of 450 (30*15) days of leave during the course of his employment. Mr. A has already used 100 days of paid leave and has 350 days of unutilized leave remaining.
And he was earning INR45,000 per month in basic pay + DA when he retired, and he earned INR5,25,000 as leave encashment calculated on 350 days * INR 1,500 (salary per day = INR 45,000/30 days).
|Particulars||Amount (in INR)|
|A. Leave Encashment Received by individual||5,25,000|
|B. Less: Exempt||-4,50,000|
|Least of the following:|
|1. Amount notified by the Government||25,00,000|
|2. Actual leave encashment||5,25,000|
|3. Average salary for a period of 10 months =|
|INR 45,000*10 months||4,50,000|
|4. INR 1,500*(30 days*15 completed years – 100 days of utilized leave)||5,25,000|
|C. Taxable Leave Encashment (A-B)||75,000|
Agnipath Scheme 2022
The payment received by Agniveer is tax-free. The finance minister said during her Budget 2023 statement in Parliament that the money received by the ‘Agniveers’ from the Agniveer Corpus Fund is intended to be tax-free. She also stated that it is planned to grant the Agniveer a deduction in the computation of total income for contributions made by him or the Central Government to his Seva Nidhi account.
MSME and Payment to MSME
Section 43B is the one thatcovers this.
The Finance Minister Nirmala Sitharaman proposed in her Budget 2023-24 speech to insert a new clause (h) in section 43B to provide that any sum payable by the assessee to anMSME / micro or small enterpriseafter the time limit which is provided in Section 15 of the MSMED Act, 2006 shall be allowed as deduction only on the basis of Actual Payment.
Certain deductions are authorized only on actual payment, according to Section 43B of the Act. Furthermore, Section 43B provides for accrual deductions if the amount is paid by the due date for filing the income tax return.
Section 15 of the MSMED Act requires payments to micro and small businesses to be made within 45 days of the signed agreement. If no such agreement is reached, the payment will be issued within 15 days. As a result, the proposed adjustment to Section 43B will only enable payments as deductions on a payment basis. It can only be approved on an accrual basis if the payment is made within the time frame specified in Section 15 of the MSMED Act of 2006. The amendment will take effect onthe 1st of April,2024, i.e., in the fiscal year 2023-24.
Relief For Start-Ups In Forwarding And Setting Off Losses
The 51% ownership requirement has been reduced, and the carry-forward period has been extended from 7 to 10 years. Get started Eligible for exemption – incorporation date extended till 1stApril2024. India is presently the world’s third-largest startup ecosystem and ranks second in innovation quality among middle-income nations. The government has suggested extending the date of incorporation for start-ups seeking income tax incentives from 31-Mar-23 to 31-Mar-24. It was also recommended to extend the advantage of carrying forward losses on changes in ownership of start-ups from seven to 10 years after formation.
Start-ups – those registered with DPIIT and with a revenue of less than INR 100 crore – are eligible for these perks. The government has extended the benefits of several tax breaks for registered start-ups until 31stMarch 2024.
Second, the provision permitting private start-ups to carry over and use prior losses to decrease taxable income has been extended from 7 to 10 years following incorporation. This adjustment favours start-ups that have had ownership changes throughout their first ten years of existence.
Gold To Electronic Gold Receipt
Conversion of physical gold to electronic gold and vice versa is not a transfer and does not result in a capital gain. The government declared that there would be no capital gains tax if real gold is converted to an Electronic Gold Receipt (EGR) and vice versa in order to stimulate the purchase of electronic gold. It is intended to remove from the definition of ‘transfer’ for the purposes of capital gains the conversion of physical gold into EGR and vice versa by a SEBI-authorized Vault Manager.”
It is also projected that the cost of acquiring the EGR for the use of computing capital gains be deemed to be the golds cost in the hands of the individual in whose name the EGR / Electronic Gold Receipt is issued, and that the holding period for the purpose of capital gains include the period in which gold was held by the assessee beforeit is being converted into EGR. Similarly, provision for gold to EGR conversion is planned.
Presumptive Scheme of Taxation
Increased to INR 3 Crore (from INR 2 Core) for Businesses and INR 75 Lakhs for Specific Professionals (from INR 50 Lakhs). Section 44AD of the Act now provides for a presumed income structure for small firms, among other things. This plan applies to certain resident assessees (i.e., an individual, HUF, or a partnership firm other than an LLP) who engage in qualified business and have a turnover or gross receipt of two crore rupees (INR 2 Crores) or less.
Under this method, earnings and gains from business are assumed to represent 8% or 6% of turnover or gross revenues, subject to specified requirements. If an assessee claims to have earned more than 8% or 6%, the excess is taxed. Section 44ADA of the Act establishes a structure of presumptive income for small professions. This scheme applies to certain resident assessees (i.e., a person, or partnership company other than an LLP) who are engaged in any profession listed in subsection (1) of section 44AA and whose total gross earnings do not exceed fifty lakh rupees (INR 50 Lakhs) in a preceding year.
Profits and gains from business are regarded to be equivalent to 50% of gross receipts under this plan. If the assessee claims to have earned more than 50% of the total, the excess is taxed.
Income From Other Sources
Interest, dividend, and rental earnings have been awarded a pass-through character at the level of business trusts and are taxable in the hands of the unit holder. However, the distributions made by the business trust to its unit holders, which are reported as debt repayment, are actually distributions of excess cash, and it can be shown that neither the business trust nor the unit holder was taxed. Such monies received by a unit holder are intended to be taxed in his hands.
Hence Section 56(2)(xii) is proposed to be added to specify that such revenue from a business trust shall be considered as income from other sources received by a unit holder. According to the budget paper, the Finance (No.2) Act of 2014 established a separate taxing framework for REITs and InVITs (commonly referred to as business trusts). The special regime was implemented to address the issues of infrastructure funding and investment. Through stock or loan instruments, business trusts engage in special purpose vehicles or SPVs.
Keeping in mind the business structure, the special taxing regime under Section 115UA of the Act, among other things, offers a pass-through status to business trusts in respect of interest and dividend income received from an SPV, as well as rental revenue in the case of a REIT. According to the agreement, such income is taxable in the hands of unit holders unless explicitly exempted.
Capital Gain Tax
The maximum amount that may be invested in residential property is INR 10 crore. As you are known, Capital Gain on the Sale of Capital Assets is exempted when invested in acquiring any other residential property, and there is no restriction on such adjustment of Capital Gain. This exemption is given under Sections 54 & 54F of the Income Tax Act of 1961. It makes purchasing expensive flats easier. The Budget 2023 – Any capital gains deriving from the sale of long-term assets, including residential residences, are now tax-free if the earnings are reinvested in another residential property, and there is no restriction on the amount that may be deducted.
However, under the new regulations, capital gains on which a deduction can be claimed are limited to INR 10 crore.
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