The writer elaborates on all the important aspects of the Union Budget for the year 2023-24
They say stars can’t shine without darkness. Despite the cloudy outlook of geopolitical tensions and worries of a global recession, India has continued to be one of the brightest and fastest growing economies. In the backdrop of the Indian economy staging a broad recovery across sectors and buoyancy in tax collections, the first Union Budget in Amrit Kaal has stayed on course to achieve inclusive growth.
The Budget theme for the current year, the ‘Saptarishis’ or the seven priorities consisting of Inclusive Development, Reaching the last mile, Infrastructure and Investment, Unleashing the potential, Green growth, Youth power and Financial sector have seen a slew of reforms and significant allocations.
In sync with the Budget theme of the Seven Rishis, the current growth rate of 7%, and the trending Nil tax for incomes upto Rs.7 lakhs, here are seven important budget announcements:
1) Personal Taxes:
The budget continues with the Government’s policy of providing a stable and predictable tax regime by not proposing many changes to the tax laws.
In 2020, the Government had introduced an optional new tax regime for personal taxation, with lower slabs and minimal deductions as against the traditional tax regime with deductions/exemptions, such as standard deduction, Section 80C, housing loan benefits etc. As the new regime did not see many takers, the following amendments are proposed to make the new tax regime more attractive:
•The tax slabs in the new regime have been relaxed, and the minimum threshold is increased from Rs. 2.5 lakhs to Rs. 3 lakhs.
•100% rebate from taxes has been proposed where income does not exceed Rs. 7 lakh as against the earlier limit of Rs. 5 lakh. With the applicability of Section 5A of the Income Tax Act (Apportionment of income between spouses governed by Portuguese Civil Code),Goan spouses could further benefit from nil taxes on combined income (other than salary income) up to Rs. 14 lakhs.
•Standard deduction of Rs. 50,000 introduced for salaried individuals and pensioners.
•The maximum surcharge rate has been reduced from 37% to 25%.
•The New Tax regime has been made the default regime; although taxpayers can do the math on how deductions impact their taxes and opt for the benefits of the erstwhile tax regime. Taxpayers not having income from business or profession can exercise this option on a year-on-year basis, while taxpayers having income from business or profession can exercise this option only once.
The reforms in the New Tax Regime are welcome and will help increase the disposable income for many taxpayers. However, deductions such as Section 80C and 80D are not only avenues for tax deductions, but are also an encouragement to save, invest and insure for a rainy day. Similarly, allowing principal and interest on housing loans encourages social security in today’s VUCA world, especially for first time home buyers. Now that the revamped tax regime without such deductions is here to stay, taxpayers will not only have to calculate the best tax effective regime for themselves, but also have to make rational financial and investment decisions without the nudges of a tax arbitrage.
2) Ease of Doing Business
The ease of doing business has been a consistent component of recent Budgets and the reduction of more than 39,000 compliances and decriminalisation of more than 3,400 legal provisions are surely steps in the right direction.
Businesses are generally aggrieved that in many instances, the same information has to be submitted to multiple government departments and regulators, which is quite time consuming. Further, submission of physical copies in today’s day and age is inefficient and not environment friendly. To resolve these matters, the Budget has proposed Entity DigiLockers to be set up for use by small and large businesses, which will help in storing and sharing documents online securely, whenever needed, with various authorities. Businesses can use their Permanent Account Number (PAN) as the common identifier for all digital systems of specified government agencies. Further, the Budget has proposed a Unified Filing Portal, where filing of information on a common portal will be shared with other agencies as per filer’s choice.
Although the lowering of tax rates for Firms and LLPs was not on the cards, the MSMEs will immensely benefit from the easing of credit flows thanks to the revamped Credit Guarantee Trust for Micro and Small Enterprises (CGTMSE) scheme announced in the Budget. The conditional increase in presumptive tax limits from Rs. 2 crore to Rs. 3 crore for eligible businesses and from Rs. 50 lakh to Rs. 75 lakh to eligible professionals in cases where cash receipts are restricted to less than 5% of the total turnover/gross receipts will ease compliance, promote digital transactions, and support formalisation of the economy.
To ensure that micro and small enterprises receive payments on time, the Budget has proposed that deduction for expenditures incurred on payments made to micro and small enterprises will be allowed to the buyers only when the payment is actually made. Deduction will be allowed on accrual basis only if the payment is within the time mandated under the MSMED Act. The new provisions combined with compound interest at three times of bank rate will be a double whammy for buyers who do not pay small businesses on time. With new thresholds of micro, small, and medium enterprises in place since 2020, it is suggested that businesses reconfirm the status of their suppliers to avoid a tax outflow at a later stage.
India is the third largest ecosystem in the world for start-ups, and the Budget has offered positive tax measures for the budding entrepreneurs. Start-ups require the most support in their nascent stages, and the move to extend the date for incorporation for eligible start-ups by an additional year for income tax benefits and to also lengthen the period for carry forward of losses to 10 years, will provide a further impetus to the startup community.
In 2012, a tax provision was inserted in the Income Tax statute with an objective of preventing the generation and circulation of unaccounted money from resident investors in a closely held company, popularly known as Angel Tax. Although the Government had taken initiatives to ease the Angel Tax rules for start-ups in recent years, there is clarity required over a new proposal which kicks the hornet’s nest to make the share premium received over fair value from non-residents taxable in the hands of the company. The new provision makes it imperative that all foreign investments in Indian companies be backed by a robust valuation mechanism to mitigate any Angel Tax for the share issuing company.
It is commendable that boosting tourism will be taken up on mission mode with active participation of states, and we hope that Goa is one of the 50 selected destinations to be developed as a complete package. The focus on last mile connectivity and setting up of Unity Mall to promote our own GI products and handicraft products will spur local tourism. Although Goa will receive increased footfalls from the unique ‘Dekho Apna Desh’ initiative, there could have been alternate solutions for promoting domestic tourism rather than imposing a high Tax Collection at Source (TCS) on overseas tour packages. Many taxpayers and senior citizens would like to spend on overseas tour packages out of their savings, especially after the uncertainties of covid. The primary income in most of the cases is already taxed, and the remittance for overseas tours per se would not have an impact of their taxable income. Imposing a steep 20% of TCS, will not only affect cash flows of individuals and create refund obligations for the Income Tax Department but will also affect the industry facilitating overseas tourism. The Government would have to relook if these provisions, which were essentially formed as a tracking mechanism, are burdening the taxpayers and the industry.
6) Green Growth
Balancing the demands of the economy and ecology is a tightrope, and the fact that the word ‘Green’ has features 60 times in the budget speech signifies the support to reduce carbon intensity of the economy and provide for large-scale green job opportunities. The ambitious ‘panchamrit’ and net-zero carbon emission goals are laudable. The Budget has also proposed a Green Credit Programme which will incentivise environmentally sustainable and responsive actions by companies, individuals and local bodies, and help mobilise additional resources for such activities.
7) Macro Economy
Sticking to fiscal prudence is no mean feat when addressing the demands from multiple stakeholders. The fiscal deficit target of 5.9% of the GDP in Financial Year 2023 is well on track as the Government aims to reduce fiscal deficit below 4.5 per cent by 2025-26. The proposed jump in capital outlay to `10 lakh crore (an increase of 33.4% over the last year) is noteworthy and should kickstart a virtuous cycle of growth. The reciprocal private investments can now be expected to give further impetus to growth and job creation.
To conclude with the theme of seven, Stephen Covey, author of the renowned book The 7 Habits of Highly Effective People defines ‘Effectiveness’ as the balance of obtaining desirable results while caring for those who produce those results. The Union Budget 2023 also showcases this effectiveness, as it provides a comprehensive approach to drive towards economic growth and build a strong foundation for India @ 100 while emphasising on a stable tax regime, supporting entrepreneurship and fostering a thriving business environment. Being the last full budget before the 2024 elections, it is now time to fully focus on relentless execution of the announcements.