Union Budget 2023 – Tax & Finance updates

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Finance Minister Smt. Nirmala Sitharaman’s announcement of significant revisions to tax slabs under the new tax regime and a significant increase in expenditure for railroads and capital spending along with incentives to key sectors was good news for taxpayers and the economy. The Union Budget 2023, the fifth budget under Modi 2.0, was delivered by Union Finance Minister Nirmala Sitharaman on Wednesday. All the Highlights of Union Budget 2023-24 are mentioned in this article.

Aim of the Union Budget 2023-24

This budget is an attempt to prepare the country against future threats and deal with the current ones. Several reforms were enacted to increase economic consumption, reduce regulatory complexity, help micro, small, and medium-sized enterprises (MSMEs), and benefit the middle class.

The Budget identified seven preferences: inclusive development, addressing the last mile, infrastructures and investments, unlocking the potential, green growth, young power, and the financial sector. The updates in the Union Budget 2023 were also focused on these seven priorities.

Budget 2023 Updates for Income Tax 

Modifications in New Tax Regime

The new tax system is now the default tax system in effect. As part of its effort to make the new tax structure more appealing, the administration has implemented multiple major steps. However, taxpayers can also opt for the old tax regime  if they like. The major steps taken regarding Tax Regime are as follows:

  • Under the new tax regime, a no tax till annual income  of Rs 7 lakhs has been introduced. If your taxable income is less than 7 lakhs, you will  not have to pay any tax.
  • Under the new tax system, a standard deduction of Rs 50,000 is available as it is without change.
  • Earlier surcharge of 37% required to be paid if taxable income exceeds INR 5 Crore. Now it is reduced to 25% . This action reduces effective tax rate from 42.74 percent to 39 percent.
  • Tax exemption has been eliminated from insurance plans with premiums above Rs 5 lakh. If an insurance policy is issued on or after 1 April 2023 carrying premium INR 5 Lakhs then tax is chargeable on bonus, surrender value,  maturity amount, etc. However no tax shall be payable on compensation against death of insured.
  • New Tax Slabs introduced which are as follows:

2023 budget TAX SLAB

  • Co-operative societies would be given a greater maximum of Rs 3 crore for TDS on cash withdrawals.
  • There will soon be a new Common IT Return Form available for taxpayers to use for ITR Filing.
  • A more robust system for resolving complaints will be developed.
  • The tax deducted from the non-PAN portion of an EPF withdrawal is decreasing from 30% to 20%.

Tax Benefits for Startups

  • The revised time limit to claim tax exemptions for Startups is now 31.03.2024.
  • The Time limit for set-off and carry forward of losses is now revised to 10 years from incorporation instead of seven years.

Important note: The only need for a loss to be carried forward and offset is that at least 51% of the shares be held by shareholders in the year in question.

Taxation Updates for Cooperative Societies

Innovations in the Manufacturing Sector

To encourage new co-ops to enter the industrial sector, the government has extended a favourable tax rate of 15% to those that do so by March 31, 2024.

Sugar cooperatives

If a sugar co-op has had expenses that were previously banned, they can submit a request to the Assessing Officer to have them refunded.

194N Section

The threshold at which TDS is applied to cash withdrawals by co-operative societies has been raised to Rs. 3 crores.

Upper Bound on Bank Deposits

The threshold for cash deposits and loans by Primary Agricultural Co-operative Societies (PACS) and Primary Co-operative Agriculture and Rural Development Banks (PCARDBs) is being raised to a maximum of 200,000 per member.

Further Direct Tax Updates in Union Budget 2023

  • For non-government workers, the exemption level for leave encashment has been raised from Rs 3 lakh to Rs 25 lakh. Thus, under Section 10, leave encashment of up to Rs. 25 lakhs for a maximum duration of 10 months is tax-free at the time of retirement (10AA).
  • TDS on taxable EPF withdrawals has been decreased from 30% to 20%.
  • Any payment made to an MSME is only allowable as an expense when it is actually paid . This change brings ‘payments to MSME’ under Section 43B’s scope.
  • No penalty shall arise under Section 269SS or 269ST with respect to the acceptance or repayment of a loan by a primary agricultural credit society or primary co-operative agricultural and rural development bank to its members or vice versa.
  • The capital gains tax exemption under Sections 54 to 54F is limited to Rs. 10 crores. There was no such thing as a threshold before.

Modifications in Indirect Taxation under Union Budget 2023-24

  • Certain cigarettes are subject to a 16% tax increase.
  • New cooperatives that begin production before March 20, 2024 will pay a 15% tax rate.
  • The basic customs tax on crude glycerine has been decreased to 2.5%.
  • Import duties on silver bars have been raised to bring them in line with gold and platinum.
  • Customs tax cuts on mobile phone component imports will be extended by one year.
  • Customs tax on open cells of TV panels has been cut to 2.5% in order to boost TV manufacture.
  • Customs relief is granted. Import duty on specific parts and inputs, such as camera lenses.
  • The tariff exemption on lithium-ion cells for batteries has been extended for another year.
  • The number of basic customs tax rates on non-textile and agricultural commodities has been decreased from 21 to 13. As a result, there are minimal tax adjustments on some commodities such as toys, bicycles, and vehicles.

Alterations in GST Regulations 

  • Section 10 has been changed to allow taxpayers to participate in the composition scheme even if they offer items through e-commerce operators where TCS is collected under Section 52.
  • Section 16 is changed to include a requirement that if a recipient taxpayer fails to pay their supplier the invoice amount, including GST, within 180 days of the date of issuing of the invoice, they must pay interest calculated under Section 50 on it.
  • Sections 37, 39, 44, and 52 are revised to prohibit taxpayers from GST Return Filing of GSTR-1 (return for outward supplies), GSTR-3B (summary returns), GSTR-9 (annual returns), and GSTR-8 (e-commerce operator) for a tax period after three years from the due date.
  • A penalty of Rs.10,000 or the amount of tax involved, whichever is greater, shall be imposed on e-commerce firms who-
    • Allow an unregistered person to supply goods or services, or both, unless the individual is excluded from GST registration.
    • Allow any registered individual to make interstate supplies of goods or services through them even if they are ineligible.
    • Do not provide correct data on any transaction of goods made via them by a person exempt from acquiring GST registration on the GSTR-8.
  • The following offences have been decriminalised:
    • obstructing or preventing an official from carrying out their responsibilities under the CGST Act,
    • tampering with or destroying material evidence or documents,
    • failing to submit information required by the CGST Act or Rules, or providing false information.
  • The restrictions for compounding offences have been reduced to 25% of the tax involved up to a maximum of 100% of the tax involved.
  • The CGST Act now includes a new section 158A that allows firms to communicate GST data digitally with permission. Information provided by a registered person on the GST portal may be shared with other systems that have been notified, as stated in a person’s GSTR-1, GSTR-3B, GSTR-9, Application for Registration, Statement of Outward Supplies, Electronic Invoice, Electronic Way Bill, or any other facts that may be specified.

Highlights of Budget 2023: Inclusive Development

The government’s “Sabka Saath Sabka Vikas” strategy has helped many segments of society, including women, SCs, STs, OBCs, and other marginalised groups. These initiatives will be continued throughout the budget.

Highlights from the 2023 Budget: Reaching the Last Mile

Using the success of the Aspirational District programme as a foundation, the government started the following:

  • Over the next three years, an outlay of Rs 15000 crores is proposed for the newly created Pradhan Mantri PVTG (Primitive Vulnerable Tribal Group) to enhance the socioeconomic situations of vulnerable tribal communities.
  • The budget for the PM Awaas Yojana has been increased by 66% to around Rs 79,000 crores.
  • Over the following three years, the centre intends to engage 38,800 teachers and other personnel for 740 Eklavya Model Residential Schools, which will serve 3.5 lakh tribal kids.

Highlights of Budget 2023 for Infrastructure and investment

  • The proposed capital expenditure is up 33% to Rs 10 lakh crore.
  • The state governments’ 50-year interest-free loan would be extended for another year, resulting in an outflow of Rs 1.3 lakh crore.
  • A total of Rs 2.4 lakh crore is budgeted for railroads.
  • To improve regional aviation connectivity, fifty airports, heliports, water aerodromes, and advanced landing grounds will be revitalised.
  • The Urban Infrastructure Development Fund (UIDF) would be formed with an annual investment of Rs 10,000 crore to build urban infrastructure in Tier 2 and Tier 3 cities.

Unleashing the Potential or Focus on the Future in Budget 2023

  • Vivad se Vishwas I: If MSMEs fail to execute their contracts within the Covid term, the government and its undertakings would reimburse 95% of the forfeited sum due to bid or performance security.
  • The KYC procedure will be simplified, and the PAN card will be used as a single identifier.
  • A National Data Governance Policy will be developed, allowing startups and academics access to anonymised data for research and innovation.
  • To make conducting business in India easier, 39,000 regulations have been eliminated and 3,400 laws have been decriminalised.
  • To realise the objective of “Make AI in India and Make AI work for India,” three centres of excellence for Artificial Intelligence (AI) would be established in premier educational institutions.
  • A unified filing method will remove the need to file the same information with several central agencies. People will now be able to freely exchange information with other government entities via a centralised webpage.

Key Points of Union Budget 2023-24 for “Green Growth”

The government includes “Green Growth” as one of the Budget’s seven focal areas this year, with the goal of reaching net zero carbon emissions in India by 2070. The following declarations were made in support of this:

  • The National Green Hydrogen Mission has been allocated Rs 19,700 crore, which would encourage a change to low carbon intensity in the economy, reduce dependency on fossil fuel imports, and position the country as a technical and market leader in this expanding industry.
  • Construction of a 13 GW renewable energy transmission infrastructure from Ladakh is being proposed, costing a total of Rs 20,700 crore, including Rs 8,300 crore in government money.
  • The Environment Protection Act established a green credit scheme to promote ecologically responsible conduct.
  • Funds have been allocated for the central government’s recycling of old vehicles, as well as assistance to states in replacing their old vehicles and state ambulances.
  • Allocated Rs 35,000 crores for critical capital investments in the energy transition, net zero objectives, and energy security.
  • Viability gap financing is now available for battery energy storage systems with a capacity of 4,000 MWh.

Important Announcements on Youth Power via Union Budget 2023

  • The PM Kaushal Vikas Yojana 4.0 will be launched to train millions of young people in cutting-edge courses.
  • Through Direct Benefit Transfer, the National Apprenticeship Promotion Scheme would offer stipends to 47 lakh youngsters over the next three years.

Union Budget 2023 Highlights: Major Changes in Financial Sector

Revamping of credit guarantee schemes

Credit guarantee programmes for businesses having MSME Registration would be revamped beginning in 2023, with an investment of Rs 9,000 crore. This would give an additional Rs 2 lakh crore in collateral-free guaranteed credit. Furthermore, the credit cost will be decreased by roughly 1%.

Unified IT system for registration 

To enhance company operations in GIFT IFSC, the government would implement a single IT system for SEZ authorities, IFSCA, GSTN, SEBI,RBI, and IRDAI registration and approval.

Establishment Central Processing Center

A Central Processing Center will be built to offer businesses with faster replies via centralised handling of various forms under the Companies Act.

Integrated IT portal

The Investor Education and Protection Fund Authority will build an integrated IT platform to assist investors in reclaiming unclaimed shares and unpaid dividends.

Mahila Sanman Savings Certificate

A one-time deposit programme for women with a maximum investment of Rs.2 lakh and a duration of up to two years has been created under the Mahila Sanman Savings Certificate. This programme will pay a fixed interest rate of 7.5% until March 2025.

Senior Citizen Savings Scheme (SCSS) 

For the quarter ended March 31, 2023, the maximum investment limit has been increased from Rs.15 lakh to Rs.30 lakh, with an interest rate of 8%.

Postal Monthly Income Scheme (POMIS)

The deposit limit under the Postal Monthly Income Scheme (POMIS) has been increased from Rs.4.5 lakh to Rs.9 lakh for single accounts and Rs.9 to Rs.15 lakh for joint accounts.

Highlights of Budget 2023: Budget Allotment and Key Figures

  • GDP growth in FY23 is expected to be 7%. To increase the availability of quality, disease-free planting material, the Atmanirbhar Clean Plant Programme would invest Rs 2,200 crore on high-value horticultural crops.
  • The objective for agricultural finance would be raised to Rs 20 lakh crore.
  • Currently, the budget deficit is 6.4% of GDP. The government intends to reduce it to less than 4.5% of GDP by 2025-26.
  • The government has announced a 2% interest subsidy to assist farmers in obtaining short-term loans of up to INR 3 lakh at an effective interest rate of 7% per year.
  • The Reserve Bank of India (RBI) raised the collateral-free agricultural loan ceiling from INR 1 lakh to INR 1.6 lakh.

What got cheaper and costlier after the Union Budget 2023?

What got cheaper What got costlier
Gold Travel by flights
Televisions Imitation jewellery
Smartphones Cigarettes
Compressed gas for EVs Silver
Lab-grown diamonds Bicycles
Lithium-ion batteries for mobile phones Electric kitchen chimney
Industrial rubber

Increasing threshold limits for presumptive taxation schemes

It is suggested to enhance the threshold limits for the presumptive scheme of taxes for qualifying firms from 2 crore to 3 crore and for designated professions from 50 lakh to 75 lakh in order to ease compliance and promote non-cash transactions.

“The new threshold will apply only if the amount or aggregate of sums received in cash during the year does not exceed 5% of total gross receipts/turnover,” Sitharaman stated.

Furthermore, it is important to note that Cheques or bank drafts that are not account payee will be considered cash receipts under Sections 44AD and 44ADA. Furthermore, these revisions will take effect from April 1, 2023, and will apply to the subsequent assessment years.

44AD(For small businesses)
44ADA(For professionals like doctors, lawyers, engineers, etc.)
Current Limit 2 Crore Rupees 50 Lakh Rupees
New Limit 3 Crore Rupees 75 Lakh Rupees
Regulation for New Limit 95% of receipts and payments is being made through non-cash methods 95% of receipts and payments is being made through non-cash methods
New Limit Applicable from 1st April, 2023 1st April, 2023

In a Nutshell

To conclude, the Union Budget 2023 introduced several new reforms to benefit the taxpayers while helping the economy to grow at a good pace. As a result of the Union Budget 2023, we will be witnessing several updates which will be important for everyone to know. You can read the official Union budget – 2023-24 speech at: BUDGET 2023-2024 NIRMALA SITHARAMAN  

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