Budget 2023 showcased a continuation of poverty alleviation initiatives, agricultural enhancements, and railway modernisation efforts. However, the Finance Minister’s address also emphasised emerging trends, focusing on green mobility, mobile manufacturing, and lab-grown diamonds. The return of a duty increase on cigarettes after a three-year absence marked a noteworthy shift. Salaried individuals, perennially hopeful for tax relief, found some respite in this budget.
The Finance Minister articulated a reformist agenda, aiming to streamline compliances and decriminalise certain economic offences. Notable amendments in the domain of direct taxation were introduced, effective from April 1, 2023.
Key Direct Tax Amendments
Income deemed to accrue or arise in India: ‘Resident but not ordinary resident’ individuals receiving money without consideration exceeding ₹50,000 were brought under the tax ambit.
Exempt Income- Section 10:
Life Insurance Policy Payouts:
Money received from life insurance policies with premiums exceeding ₹5 lakhs per year will be taxed as income from other sources.
This applies to both individual policies and combined policies with premiums exceeding ₹5 lakhs across multiple policies held by the same person.
However, money received upon the death of the policyholder remains exempt from tax.
Taxation of News Agencies:
Income earned by news agencies established in India solely for news collection and distribution will be taxable starting from the financial year 2023-2024.
This means news agencies will need to file income tax returns and pay taxes on their profits.
Tax Holiday for SEZ Units:
The tax holiday benefit for Special Economic Zone (SEZ) units will continue, but with stricter conditions.
To avail of the tax holiday, SEZ units must bring their export earnings into India in convertible foreign exchange within 6 months of the financial year-end or obtain an extension for this deadline from the Reserve Bank of India.
File their tax returns within the prescribed due date.
New Tax Regime
The new tax regime, introduced a few years ago, has been made the default option for all taxpayers, including individuals, Hindu Undivided Families (HUFs), and Association of Persons (AOPs). While offering lower tax rates compared to the old regime, it comes with the drawback of forgoing certain deductions and exemptions. However, the government has made efforts to make the new tax regime more attractive.
Revised Tax Slabs:The new regime saw revised slab rates with lower tax rates and a higher basic exemption limit of ₹3 lakh.
Higher tax rebate limit: The tax rebate limit has been increased to Rs. 7 lakhs under the new regime, offering a complete reprieve from tax liabilities. This translates to immediate financial relief and greater disposable income for a large segment of the population.
Standard Deduction: The ₹50,000 standard deduction is now applicable under the new regime, effectively raising your tax-free income to Rs. 7.5 lakh.
Family Pension: The new regime provides a standard deduction of Rs. 15,000 or 1/3rd of the family pension, whichever is lower.
Surcharge Rationalization: High earners (above Rs. 5 crores) will now pay a reduced surcharge rate of 25% compared to the earlier 37%, bringing their effective tax rate down to 39%.
Default Tax Regime: The new regime is the default regime, but the taxpayers (other than those having business/professional income) will have the flexibility of choosing the tax regime that best suits their financial situation.
Presumptive Taxation
The threshold for presumptive taxation benefit was increased, provided the cash receipts do not exceed 5% of total receipts during the year:
Businesses: From ₹2 Crore to ₹3 Crore.
Professionals: From ₹50 lakh to ₹75 lakh
Online Gaming: Only net winnings from online gaming will be taxed at 30%.
80G Donations: Donations made to the following Funds will not be eligible for any deductions:
Jawaharlal Nehru Memorial Fund
Indira Gandhi Memorial Trust
Rajiv Gandhi Foundation
Outlook for 2024
Looking ahead to 2024, the tax landscape appears poised for further reforms and adaptability. The Finance Minister’s commitment to reducing compliance complexities and fostering a conducive business environment sets the tone for future developments.
In conclusion, the fiscal year 2023 witnessed a blend of continuity in established schemes and targeted amendments reflecting the evolving economic landscape. The outlook for 2024 holds promise for a more straightforward tax regime, simplification of capital gains, and enhanced deduction limits for 80C and 80D to adjust for inflation. As we navigate these changes, the need for informed decision-making and strategic financial planning becomes paramount.
Archit Gupta is Founder and CEO of Clear.
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Published: 27 Dec 2023, 02:27 PM IST