Fast-forward to 2023 -

Presented by the Hon’ble Finance Minister of India Mrs. Nirmala Sitharaman on the 1st of February 2023, Budget 2023 aims to provide better access to public services, reduce poverty and unemployment, and encourage direct investments in the latest technologies, an entrepreneurial spirit, & innovative mechanisms.

With recessionary symptoms hitting across the globe owing to various macroeconomic as well as geopolitical conditions, the threat of inflation is looming larger on the heads of the common Indian citizen more than ever. Budget 2023 was touted to be an inflation-inclusive and common-man-friendly budget that was intended to serve the interests of the middle class at large.

The Indirect Tax Perspective

Various indirect taxes such as customs have been simplified in Budget 2023 to encourage higher exports, increased domestic manufacturing, adoption of green mobility, and add more value to the economy as a whole. Mobile phones and allied components, along with other technological components and certain industrial/agricultural commodities are foreseen to get cheaper. On the other hand - fully imported articles, clothes, luxury metals, and imported vehicles are set to get costlier.

Let’s have a look at the major highlights of changes in Indirect Taxes: -

● Taxes on cigarettes hiked by 16% - calamity cess imposed.

● Basic Import Duty on compounded rubber increased to 25% (from 10%)

● Basic Customs Duty hiked on articles made from gold bars.

● Customs Duty on Kitchen Electric Chimney increased to 15% (from 7.5%)

● Customs Duty on parts of open cells of TV panels reduced to 2.5%

● Customs Duty reduced on import of certain inputs for mobile phone manufacturing in India.

The Income Tax Perspective

Various income tax reliefs have also been granted to reduce compliance burden, provide tax relief to citizens, and also to promote investments & savings amongst individual taxpayers. There has been a significant reduction in the highest surcharge rates and certain tax exemption limits have also been increased. The income tax slab rates have also been further simplified to increase the basic exemption limit and thereby extend the benefits of the standard deduction to the salaried middle class and pensioners.

Disadvantages of opting for the New Tax Regime: -

● No Chapter VI-A deductions allowed – Payments made for Insurance Premium/ELSS/Housing Loan Principal Repayment (80C), Health Insurance Premium (80D), Housing Loan Interest Repayment (80E), Savings Bank Interest (80TTA), Donations to Trust or Political Party (80G/80GGC) shall all remain invalid.

● No House Rent Allowance (HRA) or Leave Travel Exemption (LTE) can be claimed.

● Salaried persons have the choice of choosing between Old and New tax regimes, based on which benefits them most. Whereas for other assessees, the switch to the new regime is irreversible and can be done only once.

● An Individual/HUF cannot claim a set-off of brought-forward business losses/unabsorbed depreciation.

● Deduction of Rs. 2 lahks cannot be claimed for the existing self-occupied house property. Interest on Housing Loan u/s 24(b) cannot be claimed. Likewise, setoff of Rs. 2 lahks from house property against salary income is not allowed.

Next-gen common ITR forms and stronger grievance redressal mechanisms are expected to be rolled out. The average time for processing ITRs filed has drastically come down to 16 days, from the earlier 93 days. The new scheme of ITR filing has been now made the default option, with the old regime still available to choose from for individual taxpayers.

Easy access to credit lines in the MSME sector has been given primary importance, thus making it easier for the average Indian citizen to set up and run his enterprise. Carrying forward of loss benefits for start-ups has been allowed from 7 years to 10 years.

Taking the cream from the churn would be our Indian senior citizens since they not only will stand to benefit from the lower income-tax slab rates but can also earn substantially higher interest from beloved schemes tailor-made for them — Senior citizens Savings Scheme (SCSS) and Post Office Monthly Income Scheme (PO-MIS). They also stand to benefit from the increased limit of Rs. 30 lakh from the earlier Rs. 15 lakh. The MIS caps have been revised to Rs. 9 lakhs from Rs. 4.5 lakh earlier (single accounts) and Rs. 15 lakh from Rs.9 lakh (joint accounts). This relieves them from the hassle to look for riskier schemes in their retirement ages and thus provides them with long-term security.

Likewise, in the case of capital gains, sec 54 and 54F have been provided an upper limit cap of Rs. 10 crores in the case of these twin exemptions. Budget 2023 has also liberalized the presumptive tax schemes’ exemption to Rs. 3 crores. But this benefit of paying tax on just 8% of the turnover comes with strings attached – less than 5% of the turnover only is allowed to be in cash. Similarly, some specified professional incomes are deemed as 50% of gross receipts subject to a condition that the annual turnover of such professionals is less than Rs.50 lakh. This limit has been enhanced to Rs. 75 lakh by Budget 2023.

Other significant tax changes for the common man include the introduction of newer tax slab rates, a standard deduction of Rs.52500 for salaried individuals earning up to Rs. 15.5 lakh as taxable income, enhancement of leave encashment for non-government employees to Rs. 25 lakh from the earlier Rs. 3 lakh and reduction in TDS to 20% from 30% on taxable withdrawal of EPF.

The maximum rate of surcharge was 37% earlier, which has now come down to 25% in the new income tax regime - thus categorically benefitting all the individual taxpayers who fit into the highest income tax bracket.

What does it imply for the Start-up World?

The exemption for foreign investors, earlier initiated in the year 2012 in the name of the angel tax regime has been done away with in Budget 2023. This provision was aimed at taxing the funds raised by a start-up more than the fair value of its share capital.

This excluded investments made by SEBI-registered alternative investment funds. This may prove detrimental to start-up funding for the biggest foreign angel investors such as Tiger Global, Softbank, Sequoia, and others. Foreign investors may find it tougher to invest in Indian start-ups under this new rule, especially at a stage where start-ups in India are witnessing exponential growth like never before.

Cramming it all - In a Nutshell

With the current government expected to go to polls somewhere in May 2024, emphasis was entirely placed on making this budget a common-man-friendly budget to attract the masses towards various welfare and development schemes. The government is also seen to be keen on adopting cleaner, greener, and more modern practices that are already quite prevalent in most parts of the world and Budget 2023 is solely aimed at incentivizing more such schemes.

With the inflationary trends hitting the roof, and various dynamic changes driving innovation while making lives easier; the government is walking on a tightrope to encourage innovation with also keeping the middle class happy. Various welfare and development schemes are encouraged and newer ones are also formulated to uplift the unprivileged.

With the country celebrating its Azadi ka Amrut Mahotsav, Budget 2023 paves the way for India to steadily march with its head held high to become the golden bird it had been for the past many centuries altogether!