Highlights of the Direct Tax Proposals of Finance Bill 2023
The Finance Minister has made several announcements in Budget 2023 regarding personal income tax amendments, including an increase in the tax rebate limit, an increase in the tax-exempt income slab, an increase in the tax-exempt leave encashment limit, and so on. In addition, the benefit of the standard deduction has been extended to salaried and pensioner taxpayers, and the highest surcharge rate has been reduced under the new tax regime.Budget 2023 direct tax proposals aim to maintain continuity and stability in taxation, simplify and rationalise various provisions to reduce compliance burden, promote entrepreneurial spirit, and provide tax relief to citizens. The Income Tax Department will continue to improve taxpayer services by making compliance simple and easy. The following is a summary of the direct tax proposals in the Finance Bill 2023:
Common Income Tax Return (ITR) Form
In Budget 2023, the Finance Minister proposed introducing a next-generation “Common Income Tax Return (ITR) Form” for the convenience and benefit of taxpayers.
Strengthening of the Grievance Redressal Mechanism
In Budget 2023, the Finance Minister proposed to strengthen the grievance redressal mechanism for direct taxes. While presenting the Budget 2023, the Finance Minister announced that she would deploy approximately 100 Joint Commissioners to handle small appeals in direct tax matters. She also stated that the department would be more selective in accepting cases for review of returns received this year.
Increase of Tax Rebate limit to Rs. 7 lac
In Budget 2023, the Finance Minister proposed raising the limit for Tax Rebate u/s 87A from Rs. 5 lac to Rs. 7 lac in the new tax regime. Thus, under the new tax regime, individuals earning up to Rs. 7 lac are exempt from paying tax.
Increase of Tax Exemption Limit/ Slab to Rs. 3 lac
In Budget 2023, the Finance Minister proposed raising the tax exemption limit (slab) in the new tax regime to Rs. 3 lac. The new regime’s personal income tax structure has six income slabs, which will be reduced to five with an increase in the tax exemption limit to Rs. 3 lac. This modification will provide significant relief to all taxpayers under the new regime.
New Income Tax Rates/ Slabs (New Regime): Finance Bill 2023
Total Income (Rs) |
Rate (per cent) |
Up to 3,00,000 |
Nil |
From 3,00,001 to 6,00,000 |
5 |
From 6,00,001 to 9,00,000 |
10 |
From 9,00,001 to 12,00,000 |
15 |
From 12,00,001 to 15,00,000 |
20 |
Above 15,00,000 |
30 |
Benefit of Standard Deduction to be extended to New Tax Regime
In Budget 2023, the Finance Minister proposed extending the benefit of the standard deduction of Rs. 50,000 to salaried individuals and the deduction from family pension up to Rs. 15,000 for taxpayers under the new tax regime also.
Reduction in Highest rate of Surcharge from 37% to 25%
The Finance Minister proposed in Budget 2023 to reduce the highest surcharge rate in the new tax regime from 37% to 25%, resulting in a reduction of the maximum marginal rate (personal income tax rate) from 42% to 39%.
Increased limit for leave encashment exemption
In Budget 2023, the Finance Minister proposed raising the limit for tax exemption on leave encashment on retirement for non-government salaried employees to Rs. 25 lakh.
New Tax Regime to be made Default Tax Regime
The Finance Minister has announced that the income tax regime introduced in 2020 will be implemented as the default tax regime. However, taxpayers will have the option to continue receiving the benefits of the previous tax regime.
Enhanced Limits for Presumptive Taxation of MSMEs and Professionals
Budget 2023 proposes increased limits for micro, small, and medium-sized enterprises (MSMEs) and certain professionals to take advantage of presumptive taxation. The increased limit will apply only if the amount or total amount received in cash during the year does not exceed 5% of total gross receipts or turnover. The budget describes MSMEs as the growth engines of our economy and proposes increased limits for microenterprises and certain professionals to take advantage of presumptive taxation.
43B Deduction only after actual payments to MSMEs
To assist MSMEs in receiving payments on time, Budget 2023 proposes to allow 43B deduction for expenditure incurred on payments made to MSMEs only when the payment is made, in order to assist such enterprises in receiving payments on time.
Relief to Cooperative Sector
The Finance Minister made numerous proposals for the cooperative sector in Budget 2023, including the following:
i) New co-operatives that begin manufacturing activities before March 31, 2024, will be eligible for a 15% tax rate, which is currently available to new manufacturing companies.
ii) Allowing sugar co-operatives to claim payments made to sugarcane farmers prior to the assessment year 2016–17 as expenditures. This is expected to provide them with nearly Rs. 10,000 crore in relief.
iii) A higher limit of Rs. 2 lakh per member for cash deposits to and cash loans from primary agricultural cooperative societies (PACS) and primary cooperative agriculture and rural development banks (PCARDBs).
iv) Co-operative societies will be given a higher limit of Rs. 3 crore for TDS on cash withdrawals.
Support for Start-ups
In Budget 2023, the Finance Minister made a number of proposals for “startups,” including the following:
i) The date of incorporation for income tax benefits to start-ups will be extended from March 31, 2023, to March 31, 2024.
ii) Extend the benefit of carrying forward losses on shareholding changes in start-ups from seven to ten years after incorporation.
Capping of Deduction u/s 54 and 54F at Rs 10 crore
In Budget 2023, the Finance Minister proposed capping the deduction from capital gains on residential house investments under Sections 54 and 54F at Rs. 10 crore in order to better target tax concessions and exemptions.
No exemption for Insurance Policies with Aggregate Premium above Rs. 5 lac
The Finance Minister proposed in Budget 2023 to limit the income tax exemption from proceeds of very high-value insurance policies where the aggregate premium for life insurance policies (other than ULIP) issued on or after April 1, 2023, is more than Rs. 5 lakh. Thus, only income from policies with aggregate premiums of up to Rs. 5 lakh will be exempt.
Exemption for Income of Authorities, Boards and Commissions
The Finance Minister proposes in Budget 2023 to exempt the income of Authorities, Boards, and Commissions established by Union or State statutes for the purpose of housing, development of cities, towns, and villages, and regulating, or regulating and developing, an activity or matter.
No minimum threshold of Rs. 10,000 for TDS
Finance Mister has proposed in Budget 2023 to remove the minimum threshold of Rs. 10,000/- for TDS.
Taxability of Online Gaming
Finance Mister has proposed to clarify the taxability relating to online gaming, i.e. to clarify about TDS and taxability on net winnings at the time of withdrawal or at the end of the financial year.
Tax Exemption for Agniveers (Agnipath Scheme 2022)
The Finance Minister has proposed that the “Agniveer Fund” be granted “EEE” status. The Agniveer Corpus Fund payment received by Agniveers enrolled in the Agnipath Scheme, 2022 has also been proposed to be exempt from income tax. Furthermore, it is proposed to allow Agniveer members to claim a deduction from their total income for any contribution made to their Seva Nidhi account by either the taxpayers or the Central Government.
TDS Rate reduced to 20% for EPF withdrawal in Non-PAN cases
The Finance Minister has proposed lowering the TDS rate on the taxable portion of EPF withdrawals in non-PAN cases from 30% to 20%.
Other Direct Tax Proposals (Finance Bill 2023):
i) Changing gold into electronic gold receipts or electronic gold receipts into gold is not considered a capital gain;
ii) Taxation of income from market-linked debentures;
iii) The period of tax benefits for funds relocating to GIFT City in the IFSC has been extended until March 31, 2025.
iv) Certain acts of omission committed by liquidators under Section 276A of the Income Tax Act will be decriminalised beginning April 1, 2023.
v) Losses on strategic disinvestment, including IDBI Bank, will be carried forward.