On the personal income tax front, Hon’ble Finance Minister G. Smt Nirmala Sitharaman made 5 major announcements for individuals in the Budget 2023. Declarations are under the new tax regime, exemption limit has been increased from 7 lakhs 5 lakh, reducing the number of slabs to five and increasing the tax exemption limit 3 lakh under the new tax regime, salaried taxpayers are now eligible for standard deduction of Rs. 50,000 and deduction from family pension up to Rs. 15,000 under the new tax regime from FY 2023-24 In the new tax regime, the maximum surcharge rate was reduced from 37 to 25 per cent, and the exemption limit for non-government salaried employees leave encashment tax was increased 25 lakhs. However, based on an exclusive interview with experts Aparna Khatri, Consulting Director, Salika Kothari, Senior Manager and Dhaval Shah, Senior Consultant at Rajshree Sabnavis & Associates, they claim that the Budget 2023 has several wins and misses on the personal tax front. He said that in view of the upcoming 2024 general elections, the chances of the current budget being populist were high. However, the FM exercised restraint and was careful in passing on the benefits to individual taxpayers. Listed below are the key areas where the Finance Minister met the expectations of the taxpayers and missed a few.
Amendments in tax regime
The finance minister happily admitted that personal income tax was the most awaited tax announcement among other announcements. The tax rates/slabs were revised to benefit individual taxpayers, but they came with conditions. The erstwhile regime under section 115BAC, providing for a differential tax structure with restrictions on specified deductions/exemptions (new tax regime), clearly stood out as the regime of choice, making it the default taxation scheme for individuals (i.e. applicable unless the individual decides to opt out) Old regime in which income was taxed at different tax rates but deductions were allowed).
Simply put, in the old regime income is taxed under 3 slab rates of 5%-20%-30% with a maximum rate of 30% where the income becomes higher. 10 lakhs. However, in such cases, the taxable income is computed after reducing the amount allowable as deduction like leave travel allowance etc., eligible investments like LIC, PPF, interest paid on home loan under section 80 Deductions, to name a few. Further, where the total income of the person did not exceed 500,000, the tax liability was Nil.
While the new tax regime was applicable from the tax year 2020-21, there were fewer takers. To plug this, the Finance Minister has raised the maximum taxable amount (from Rs. from 500,000 700,000) is available under this option and is subject to change in the tax slab. Accordingly, the tax rates under the new tax regime have been revised as under:
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While the new tax regime appears attractive, it will demand an evaluation of the comparative benefits based on the deductions available, which are tagged along with his/her financial planning goals (like predetermined amounts invested in PPF, medical insurance premiums) and his/her financial planning goals. His/her financial commitments (such as annual LIC policy premium, home loan principal/interest repayment etc.). The following case study will help in understanding it better:
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Thus, in the present case, the taxpayer would be benefited by not opting for the new tax regime. Further, the new tax regime is intended to provide tax benefits both in terms of reduced tax outflow and ease of compliance (removing the need to make investments/claim allowances etc.).
Other Major Announcements
Some of the other announcements made by the Finance Minister, which will affect individual taxpayers, are given below:
1. Rationalization of Maximum Marginal Rate (MMR): The highest surcharge rate is proposed to be capped at 25% from the existing rate of 37%, reducing the overall maximum marginal rate from ~42% to ~39%.
2. Increasing Threshold Limit for Presumptive Taxation Scheme: In the case of eligible businesses, the turnover from 2 crore to 3 crore and turnover in case of professionals from 50 lakhs 75 lakhs, provided cash receipts do not exceed 5% of receipts/turnover.
3. Elimination of double deduction of interest on borrowed capital: It is proposed that the cost of acquisition/improvement shall not include interest claimed on borrowed capital where deduction under section 24/Chapter VIA is already claimed. has been carried out.
4. Extension of provision for gift to ‘not ordinarily resident’: Gift (money given without consideration) Aggregate 50,000 received by a person not ordinarily resident in India from a person resident in India now taxable in India under section 56(2)(x).
5. In recent times, there has been an increase in the users of online games. The new section 194BA is being implemented from July 1, 2023, which provides for tax deduction at source on income from winnings from online games. 10,000.
6. Income from high value insurance policies (high premium paid 5 lakh in a year) is taxable as income from other sources. However, even in such cases, the income is exempt if the amount is received on the death of the life assured.
7. Deduction of investments made against income from capital gains to be capped under section 54/54F 100 million.
8. Increase in TCS rate on foreign remittances and foreign travel: Effective July 1, 2023, tax collected at source rates on selling foreign tour packages has been increased from 5% to 20% and LRS, except remittances for specified education or medical treatment. treatment on dispatch.
parting thoughts
While the simplification of the overall tax structure is a welcome step, the increase in government spending on making India skilled and promoting entrepreneurship aimed at increasing disposable income in the hands of the people at the bottom of the pyramid is a welcome step.
Disclaimer: The views and recommendations given above are of individual analysts or broking companies and not of Mint.
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