Budget 2023: How Nirmala Sitharaman attempted to simplify tax experience
3 min read . Updated: 01 Feb 2023, 10:57 PM IST
PremiumWhile it is beyond doubt that the government is focused on the India growth story, with the current global economic and geo-political situation, and keeping in mind the fiscal deficit it has, an attempt is made to provide tax reliefs to the hard-working individuals
The Hon’ble Finance Minister presented today the last full-fledged Budget 2023 under the Modi 2.0 Government.
While it is beyond doubt that the government is focused on the India growth story, with the current global economic and geo-political situation, and keeping in mind the fiscal deficit it has, an attempt is made to provide tax reliefs to the hard-working individuals. As the highest tax rate is proposed to be reduced by 3.744%, in my view, this will bring some breather for those looking to shift their base outside India for tax arbitrage.
Further, with the proposals, it is apparent that the Government wants to simplify the tax experience to its taxpayers by proposing a common tax return form, bringing reforms to litigation and also giving prominence to the new tax regime which does not require the individuals claim any deductions or exemptions rather pay tax at the reduced tax rates. With this, Key personal tax proposals are as below:
Tax Rates
Changes proposed under the new personal tax regime are:
Basic exemption limit enhanced from INR 2.5 lakhs to INR 3 lakhs.
Allowing standard deduction of INR 50,000 which was not available previously.
Surcharge has been capped at 25% from erstwhile 37% for income exceeding INR 5 crores. This results in tax savings up to 3.74% for income earners above 5 crores.
Rebate on taxable income has been proposed to be enhanced from INR 5 lakhs to INR 7 lakhs resulting in a tax saving of INR 33,800.
Leave encashment exemption limit increased from INR 3 lakhs to INR 25 lakhs, as announced in the FM’s speech.
Capital gains
Section 54 and 54F relating to reinvestment of long term capital gains into a new house property has been capped at INR 10 crores.
On sale of a house property, interest paid on housing loan claimed as a deduction under house property or chapter VIA cannot be considered as cost of acquisition/ improvement for the purpose of capital gains.
Other sources
Proceeds from insurance premium policies other than ULIPs taken post 01 April 2023 having premium in excess of INR 5 lakhs will be taxable (except on death) as income from other sources without any 80C deductions leading to additional tax impact for the taxpayers.
Gifts exceeding INR 50,000 from an Indian resident to Not Ordinarily Resident would be deemed to income accruing / arising in India. This has been introduced as an anti-tax avoidance measure.
Other
Threshold under section 44ADA for specified professionals increased from INR 50 lakhs to INR 75 lakhs, if cash receipts are less than 5% of total receipts.
Overall, we rate the budget as a happy budget for the individuals as the Government is already providing a good experience to the taxpayers in terms of faster processing of tax returns, tax audits, etc.
From the intent of the Government, it appears that the old regime would be grandfathered and will move to the new tax regime which will be paperless as well as lesser administrative hassle for both the government and the taxpayers. This approach will lead to a more matured economy with a flat tax structure without claiming multiple exemptions substantiated by documentary proofs by the individuals which aligns with the Government’s moto of “Minimum Government, Maximum Governance".
I will conclude with my strong belief that when the tax rates are high, there is always a chance of parallel economy getting created. By bringing this welcome relief to the taxpayers, we are treading in the right path for the India growth story. However, given that the maximum marginal rate is still on the higher side when compared globally, with the rising inflation, more can be done by the Government for the individuals in the coming years.
Anand Dhelia – Partner – Vialto Partners, India. Contributed by Santhosh.S – Director; Yamini Alva – Manager; Aashish Chhajer – Manager; Kunal Chanda – Assistant Manager
