Table of contents
- Introduction
- Union Budget 2023
- Changes in tax rates
- Ease of doing business
- Measures proposed for various sectors
- A quick summary
Introduction
The union budget is an annual financial statement presented by the Finance Minister in the Parliament of India. It outlines the government's revenue and expenditures for the upcoming financial year. It is an important tool used by the government to plan its financial activities, allocate resources, and address national economic concerns. Union Minister of Finance and Corporate Affairs, Nirmala Sitharaman, recently presented the Union Budget 2023 at the parliament.
During the budget speech, the Finance Minister said India's economic growth for the current year is at 7%, one of the highest among all the major economies. She then announced a slew of measures to benefit taxpayers and promote ease of doing business. Let's dive into what this means for business owners, startup founders, and salaried individuals.
Union Budget 2023
Amid huge expectations, Sitharaman presented the last full Union Budget on the 1st of February, 2023 before the impending national elections in 2024.
The aim of this year's budget is to strengthen macroeconomic stability, and provide strong impetus to growth, and job creation. In accordance with that, Sithraman announced major tax reforms and a hike in capital expenditure. Here's a complete breakdown of all the changes proposed.
Changes in tax rates
New tax regime
The new tax regime will be the default regime starting in the 2023-2024 financial year for individuals, Hindu Undivided Families, Association of Persons (except co-operatives), Body of Individuals, and Artificial Juridical Persons. However, taxpayers will still have the option to choose the old tax regime.
The tax structure of the new regime has been changed. The number of slabs was reduced from seven to six, and the exemption limit increased from ₹ 2.5 lakhs to ₹ 3 lakhs.
The rebate limit increased from ₹ 5 lakh to ₹ 7 lakh and a standard deduction of ₹ 50,000 has been introduced in the new tax regime. In the new tax regime, individuals with up to ₹ 7.5 lakh income do not have to pay tax.
No changes have been proposed to the rebate limit and slab rates in the existing old tax regime.
Surcharge on income tax
A surcharge is an additional charge payable on the income tax. It is levied on taxpayers who earn more than ₹ 50 lakh in a year. The highest surcharge rates for individuals, HUF, AOP, BOI, and AJP who earn more than ₹ 5 crore in a year is decreasing from 37% to 25% in the new tax regime.
Leave encashment
Tax exemption on leave encashment amount received by non-government employees at the time of retirement jumped significantly from ₹ 3 lakh to ₹ 25 lakh.
EPF withdrawal
TDS rates on the taxable portion of EPF withdrawal in non-PAN cases have been reduced from 30% to 20%.
Life insurance policy
Maturity proceeds of life insurance policies (except Unit Linked Insurance Plan) with an annual premium of more than ₹ 5 lakh will be taxed. This applies only to policies issued on or after the 1st of April, 2023.
Online gaming
The minimum threshold of ₹ 10,000 TDS will not apply for online games going forward. The government proposes to provide for TDS rates and taxability on net winnings at the time of withdrawal or at the end of the financial year.
Ease of doing business
Compliances
To reduce the compliance burden on business owners, the centre has removed 39,000 compliance, decriminalised 3,400 legal provisions, and proposed to amend 42 central Acts.
KYC verification
Know Your Customer (KYC) is a standard process that allows financial entities to authenticate and verify a customer's identity and address. The government is seeking to simplify the process by adopting a "risk-based" approach instead of a "one size fits all" approach. The financial sector regulators, the Reserve Bank of India (RBI), Securities and Exchange Board of India (SEBI), and others are encouraged to put a KYC system in place.
National Financial Information Registry (NFIR)
The NFIR will be set up by the RBI to create a public infrastructure for all credit-related information and make loans accessible to the common man.
Business identifiers
PAN will be the common identifier for businesses in government digital systems. Using DigiLocker service, a one-stop solution for reconciliation and updating the address and identity of individuals belonging to an entity will be established by the government.
GIFT IFSC
To enhance business activity in Gujarat International Finance Tech-city (GIFT IFSC), a single window IT system for registration and approval from the Special Economic Zone (SEZ) authorities, RBI, SEBI, etc, will be set up.
Measures proposed for various sectors
Ascertaining the importance of entrepreneurship in a country's economic development, Sitharaman announced the following reforms to support the growth of startups, Micro, Small and Medium Enterprises (MSMEs), cooperatives, and the manufacturing and healthcare sectors.
Startups
The tax holiday for startups has been extended by one year. Startups that do not exceed an annual turnover of ₹ 25 crores can avail a 100% tax exemption excluding the Minimum Alternate Tax. Previously, startups that were incorporated until the 31st of March enjoyed this benefit, now the date of incorporation limit has been increased to the 31st of March, 2024.
Startups can also carry forward losses on change of shareholding from seven years from their date of incorporation to 10 years.
MSMEs
The government has launched two dispute resolution schemes—Vivad se Vishwas I and II—to provide relief to MSMEs. Through Vivad se Vishwas I, enterprises are eligible for a refund of up to 95% of the forfeited amount in case of failure to execute contracts during the COVID-19 period. Through Vivad se Vishwas II, the centre seeks to easily settle any contractual disputes.
Going forward, the threshold to avail the presumptive taxation scheme have been enhanced for business owners and professionals, provided 95% of their receipts are non-cash. The annual turnover limit for MSMEs to adopt this scheme is ₹ 3 crores and ₹ 75 lakh for professionals.
The credit guarantee scheme has been revamped with the infusion of ₹ 9,000 crore in the corpus. This will enable MSMEs to get an additional collateral-free credit of ₹ 2 lakh crore.
Cooperatives
New cooperatives that commence manufacturing on or before the 31st of March, 2024 can get a lower corporate tax rate of 15%. The limit for TDS on cash withdrawal also increased from ₹ 1 crore to ₹ 3 crore under Section 194N of the Income Tax Act.
Manufacturing
To promote consumer electronics manufacturing in India, the government has proposed the following measures:
Relief from custom duties on certain parts of mobile phones like camera lenses.
Extended concessional duty on lithium-ion cells which are used to create batteries for mobile phones.
Reduced custom duty on parts of television panels from 5% to 2.5%.
Reduced custom duty on heat coils used inside electric kitchen chimneys from 20% to 15%.
Healthcare
A massive ₹ 89,155 crore has been allotted to the healthcare sector in this year's budget. A part of this amount will be used to establish 157 new nursing colleges and a program to encourage organisations to invest and research in the pharmaceuticals field will soon be launched.
A quick summary
Union Budget 2023 was presented with the aim to lay the foundation for a prosperous India, provide huge reliefs to taxpayers, and boost the growth of various sectors through a host of measures.
The amended new tax regime with six slabs will be the default regime going forward. Individuals with an income up to ₹ 7.5 lakh do not have to pay tax in the new tax regime.
Tax benefits for startups have been extended by one year and they can also carry forward losses for up to 10 years.
To support the MSME sector, the government removed many compliances and increased the limit to avail presumptive taxation scheme. To ensure the timely receipt of payments, deductions on payments will be made only if the payments are received by MSMEs.
On the consumer electronics space, mobile phones and televisions are expected to cost less as the centre has extended concessional duties on components that are used to manufacture these products.
For further understanding, take a look at the recording of our webinar where tax experts CA Siddhana Biradar and CA Guruprasad decoded the newly proposed budget here: https://www.youtube.com/watch?v=WhdckCZn43I
To check the booklet issued by the government, click here: https://www.indiabudget.gov.in/doc/bh1.pdf
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