CA Usha Kadam
The Hon’ble Finance Minister (FM) Nirmala Sitharaman presented the Union Budget 2023 on 1st Feb 2023. This budget was eyed upon by all taxpayers especially in the non-corporate category as this being the last full budget before the upcoming General Elections in the year 2024. While there is nothing much to offer to the corporate assessees, the budget has some incentives to the middle class assessees.
- Rates of Income tax
The Government has proposed to make the revised new tax regime (section 115BAC of the Act) to be the default regime of taxation. However, the taxpayers will continue to have an option to avail the benefit of old tax regime. Some of the features of this regime is as under:
- Applicability of Default (New) tax regime (section 115BAC of the Act)
Government had introduced new tax regime in the Finance Act 2020 with lower tax rate for individuals and HUFs. Now the Default tax regime would be applicable for Individuals, HUFs, Association of persons (other than Co operative Society), Body of Individuals and artificial juridical person.
- Tax rates for individuals etc under Default new tax regime
The income slabs have reduced from six to five. The rates applicable under section 115BAC for
A.Y. 2024-25 is as under:
Total Income Tax rate under Default tax regime Tax rate under old regime Upto Rs 2,50,000 NIL NIL Rs 2,50,001 to
NIL 5% Rs 3,00,001 to
5% 5% Rs 5,00,001 to
5% 20% Rs 6,00,001 to
10% 20% Rs 9,00,001 to
15% 20% Rs 10,00,001 to
15% 30% Rs 12,00,001 to
20% 30% Above 15 Lakh 30% 30%
Surcharge under the old tax regime remains the same. Further it has been proposed to reduce the highest surcharge rate from 37% to 25% in the Default tax regime for income above Rs 5 Cr.
Surcharge on income taxable under sections 111A and income from long term capital gain from all assets and dividend income would be restricted to 15%
Under old tax regime various deductions were allowed. The new tax regime denied a large set of exemptions and deductions available under various sections of the Act. There is no change in this except for the following additional deductions which are now allowed under the Default tax regime:
- Standard deduction from salary under section 16 – upto Rs 50,000
- Standard deduction from family pension income under section 57 – upto Rs 15,000
- Deduction u/s 80CCH in respect of amount paid or deposited in the Agniveer Corpus Fund
The taxpayers intending to opt for old tax regime will have to exercise an option in the prescribed form. However, in case of assessee having income from business and profession, once such option is exercised for any previous year it can be withdrawn only once and thereafter the assessee shall not be eligible to again opt for old tax regime.
- Rebate u/s 87A of the Act
In case of an individual assessee resident in India whose total income taxable u/s 115BAC does not exceed Rs 7,00,000 shall now be entitled to a rebate of an amount equal to 100% of income tax payable on total income not exceeding Rs 7 lakh. Thus for an individual having total income less than Rs 7 lakh, tax liability will be NIL.
- Tax rates for AOP/BOI under old tax regime
The slab rate for AOP/BOI remains the same.
For AOP having all corporate members, surcharge is as follows:
Income Surcharge Rs. 50 Lakhs to Rs. 1 Crore 10% Exceeding Rs. 1 Crore 15%
- Tax rates for Partnership firms and LLP There has been no change in the tax rates for partnership firms and LLP. The effective tax rates (including surcharge and cess) is as under:
Total Income Effective Rate Upto Rs. 1 Crore 31.2% (30+4%) Above Rs. 1 Crore 34.944% (30+12%+4%)
- Tax rates for corporates
There has been no change in the tax rates for corporates. The effective tax rates (including surcharge and cess) is as under:
Types of Companies Income not exceeding Rs. 1 Crore Income exceeding Rs. 1 crore and Upto Rs. 10 Crore Income above Rs. 10 Crore Normal MAT Normal MAT Normal MAT Domestic Company with turnover up to Rs. 400 crore In FY 2020-21 and avails any tax incentives or exemptions or tax holiday 26% 15.60% 27.82% 16.69% 29.12% 17.47% Other domestic company 31.20% 15.60% 33.384% 16.69% 34.944% 17.47% Domestic Company exercising option to pay tax as per section 115BAA 25.168% Nil 25.168% Nil 25.168% Nil New domestic manufacturing companies exercise ng option to pay tax as per section 115BAB 17.16% Nil 17.16% Nil 17.16% Nil Foreign Company 41.60% 15.60% 42.43% 15.912% 43.68% 16.38%*
* MAT applies to foreign company if it has a PE or business connection in India.
- Tax rates for co operative society
There are no changes to the slab rates. For Co operative societies opting for taxation under section 115BAD, the effective tax rates is 25.168%
Section 115BAE has been introduced for co operative societies having income from manufacturing or production of an article of thing. Under proposed new section 115BAE of the Act, a new manufacturing co-operative society set up on or after 01.04.2023, which commences manufacturing or production on or before 31.03.2024 and does not avail of any specified incentive or deductions, may opt to pay tax at a concessional rate of 15% for assessment year 2024-25 onwards. Surcharge would be at 10% on such tax. The effective tax rate including surcharge and cess would be 17.16%.
- The concessional tax rate is subject to fulfil of certain conditions which are similar to section 115BAB which is applicable to manufacturing companies.
- If the income of the assessee, includes any income, which has neither been derived from nor is incidental to manufacturing or production of an article or thing and in respect of which no specific rate of tax has been provided separately under this Chapter, such income shall be taxed at the rate of twenty-two per cent and no deduction or allowance in respect of any expenditure or allowance shall be made in computing such income;
- The income-tax payable in respect of income, being short term capital gains derived from transfer of a capital asset on which no depreciation is allowable under the Act shall be computed at the rate of twenty-two percent;
- The Option once exercised can not be withdrawn subsequently.
The above amendments are applicable with effect from A.Y. 2024-25.
Provision of sections 115JC and 115JD shall not apply to co operative societies opting for taxation under section 115BAD or section 115BAE. For other co operative societies, rate of MAT under section 115JC continues to be 15%.
- Applicability of Default (New) tax regime (section 115BAC of the Act)
- Agnipath Scheme, 2023
- Agnipath Scheme in the Indian Armed forces is a scheme wherein selected candidates will be enrolled as Agniveers for four year period. The financial packages offered to these Agniveers are Composite Annual package, allowances. Seva Nidhi/ corpus fund, Death compensation, disability compensation etc.
- The term “Agnipath scheme” and “Agnipath Corpus Fund” has been defined in the newly introduced Section 80CCH. The same is as under:
- “Agnipath Scheme” means the scheme for enrolment in Indian Armed Forces introduced vide letter No.1(23)2022/D(Pay/Services), dated the 29th December, 2022 of the Government of India in the Ministry of Defence;
- “Agniveer Corpus Fund” means a fund in which consolidated contributions of all the Agniveers and matching contributions of the Central Government along with interest on both these contributions are held.’.
- The “Agniveer Corpus Fund” will be maintained under the aegis of Ministry of Defence with the following features:
- Each Agniveer is to contribute 30% of his monthly package to the Individual’s Agniveer Corpus Fund. Further the Government will also contribute an equivalent amount to the said fund.
- On completion of the engagement period, Agniveer will be paid one time “Seva Nidhi” which shall comprise of their contribution including interest thereon and matching contribution from government including interest.
- In order to provide benefits to the Agniveer, it is proposed to make following amendments:
- A new sub clause (ix) has been inserted in section 17(1) of the Act to provide that “Salary” will include the contribution made by the Central Government in the previous year to the Agniveer Corpus Fund of an individual enrolled in the Agnipath Scheme refereed to in section 80CCH.
- It is proposed to insert new clause (12C) in section 10 of the Act to provide that any payment received from the Agniveer Corpus Fund by a person enrolled in the Agnipath Scheme or his nominee shall be exempt from income tax.
- It is further proposed to insert a new section 80CCH to the Act to provide that an assessee, being an individual enrolled in the Agnipath Scheme and subscribing to the Agniveer Corpus Fund on or after 1st Day of November 2022, shall be allowed a deduction of the whole of the amount paid/deposited by him and also the amount contributed by the Central Government to his account in Agniveer Corpus Fund, from his total income.
- It is proposed that in the new tax regime of section 115BAC an individual enrolled in the Agnipath Scheme and subscribing to Agniveer Corpus Fund shall get a deduction of the contribution to his Seva Nidhi.
The above amendments are applicable with effect from A.Y. 2023-24.
- Increase in Threshold limits for presumptive taxation schemes
Section 44AD and section 44ADA provides for presumptive income scheme.
- Section 44AD
Section 44AD is applicable for individual, HUF or partnership firm who is resident, carrying on eligible business and having turnover or gross receipts of Rs 2 Crore or less. It is not applicable to LLP.
The existing limit of Rs 2 Crore has been extended to Rs 3 Crore provided the cash receipts does not exceed 5% of total turnover or gross receipts during the year. Any amount received through a cheque drawn on a bank or a bank draft which is not account payee shall be considered as cash receipt for this purpose.
If the cash receipts are more than 5% then the existing limit of Rs 2 Crore will apply.
- Section 44ADA
Section 44ADA is applicable for individual and partnership firm who is resident, who are engaged in any profession referred to in sub section (1) of section 44AA and whose total gross receipts do not exceed Rs 50 Lakh in a previous year.
The existing limit of Rs 50 Lakh has been extended to Rs 75 Lakh provided the cash receipts does not exceed 5% of total gross receipts during the year. Any amount received through a cheque drawn on a bank or a bank draft which is not account payee shall be considered as cash receipt for this purpose.
Consequently, the first proviso to section 44AB is substituted to provide that the tax audit shall not apply to persons who declare profits and gains in accordance with the provisions of section 44AD(1) and 44ADA(1).
These amendments are applicable with effect from A.Y. 2024-25.
While the Government is confident that 50% of the taxpayers will shift to the Default Tax Regime, it shall be interesting to see how the proposed changes in the budget are adopted by the taxpayers. The benefit of the Default tax regime will purely depend on the quantum of the tax saving investments made by each taxpayer. The regime may find popularity amongst the High Net-worth Individuals because of the drop in the rate of surcharge.