On February 1, Finance Minister Nirmala Sitharaman presented the last full budget of this government before the general elections due next year. Coming out of the pandemic requires being fiscally prudent given the fiscal deficit, while a delicate balancing act has been done keeping in mind the expectations of the people. The budget proposals deliver on these fronts, creating sustainable and inclusive economic growth through the aptly coined ‘Saptarishi’, or seven priorities by the Finance Minister – inclusive growth, last-mile delivery, infrastructure and investment, green growth, with his ambition. Unleash the youth power, financial sector, and potential of the countrymen.
The Economic Survey has projected that India will remain the fastest growing major economy globally with a slightly lower growth rate in the next fiscal year in view of a possible slowdown in the world economy.
In one good news, however, there is a tax buoyancy: direct tax collections grew 21.1% YoY (April to November data) and gross GST collections grew 24.8% YoY (April to December data).
Coming to the budget proposals, the middle class will have some cheer on the personal tax front with certain conditions. The new tax regime announced in 2020 has been made the default tax regime. While taxpayers can opt for the old regime, the government’s resolve for greater adoption of the new regime is evident with the new slab rates, increase in exemption limit and reduction in surcharge for high net worth individuals (HNIs), new Available by arrangement only. , The standard deduction and deduction for family pension have now been carried forward in the new regime; However the medical deductible remains outside. In order to offset to some extent the loss in revenue on this account, some high value transactions will now be taxed. For example, the tax exemption limit on reinvestment of capital gains in residential property will now be fixed 10 crores and income from traditional insurance where premium is due (new policies) There will be no tax exemption on 5 lakhs.
The Finance Minister in his speech praised the qualities of entrepreneurship, especially the startup eco-system which has been a focus area of the government. The incorporation period for eligible startups to claim tax deduction has been extended by one year to April 1, 2024. Carry forward period for regular companies has also been increased from 7 years to 10 years.
One of the items expected in view of the India Plus strategy was the extension of the concessional tax regime to new manufacturing set-ups; Hopefully it will be extended further.
GIFT IFSC (International Financial Services Centre) is a major focus area in this budget as well with policy announcements. The proposal to set up a single window IT system for registration and approvals from IFSCA, SEZ authorities, GSTN, RBI, SEBI and IRDAI will go a long way in promoting ease of doing business from GIFT IFSC.
To encourage issuance of derivative contracts by IFSC banking units, the Bill proposes to amend the Securities Contracts Regulation Act to provide that offshore derivative instrument (ODI) contracts issued by FPIs in IFSCs shall also be legal and valid . In addition to income of non-residents on transfer of OD done with an IFSC banking unit, which is exempt from tax, it is now proposed to provide similar exemption for any income distributed on OD done with an IFSC bank, which is complete Does Prescribed conditions, so as to avoid double taxation at the IBU and investor level.
It was anticipated that there would be a revision in the capital gains tax regime, which was found to be complex due to different rules of taxation and holding periods for different asset classes. The government has opted to maintain status quo and avoid any major changes in this budget. However, certain specific steps such as income from market linked debentures, which are hitherto taxed as long-term capital gains at 10%, are proposed to be taxed as short-term capital gains.
Ease of compliance and trust-based administration are frequently repeated themes to reduce the burden on taxpayers and tax administration alike. Presumptive taxation limit for eligible businesses and professionals has been raised from 2 crores 3 crores and above from 50 lakhs 75 lakh, respectively, which will benefit small and medium enterprises.
Policy measures such as introduction of Green Credit program under the Environment Protection Act, exemption from excise duty on GST-paid Compressed Bio Gas, changes in customs duty rates for the auto sector and lithium ion cell manufacturing, incentivizing companies to create the necessary ecosystem and are venturing into the social entrepreneurial domain.
Budget FY23 assures that India@100 roadmap is intact. With fiscal prudence and focus on growth levers at the heart of the budget, one can say that it lays the foundation for the Indian economy to continue on its growth path.
Sameer Gupta is the National Tax Leader at EY India.
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