Income tax budget for 2023 Highlights-
As for the personal income tax, the Honorable Minister of Finance. Smt Nirmala Sitharaman made 5 important announcements for individuals in the budget for 2023. The announcements related to the new tax regime. The rebate limit was increased from 5 to 7 lakhs, the number of plates was reduced to five, and the tax exemption limit was increased to 3 lakhs. Under the new tax regime, salaried taxpayers are now entitled to a standard deduction of 50,000 rupees and a deduction from a family pension of up to Rs. 15,000 in accordance with the new tax regime from the fiscal year 2023-24, in the new tax regime, the maximum surcharge rate was reduced from 37 to 25 percent, and the nongovernment employees of tax exemption for cashing out funds of non-state employees was raised to 25 lakhs.
Sitharaman also added that a similar wallet for digital documents will be launched for commercial organizations. “The DigiLocker services to iad easy loan access says experts, will be created for micro, small and medium-sized enterprises (MSMEs), large businesses, and charitable foundations. This will be aimed at safely storing documents online and exchanging them, when necessary, with various authorities, regulators, bank accounts, and business structures,” Sitharaman said.
According to government data, DigiLocker has registered more than 14.6 million people on the platform and issued 5.6 billion documents. Among the most frequently issued documents are the Aadhaar card, insurance documents, PAN card common ID for business registration and verification of records, as well as an insurance policy for two-wheeled vehicles.
The Finance Minister said that in order to stimulate innovation and research by startups and academia, a national data management policy will be developed that will provide access to anonymized data. Sitharaman announced that Entity DigiLocker will be created for use by micro, small and medium enterprises, large businesses, and charitable foundations to securely store documents online and exchange them, when necessary, with various authorities, regulators, banks and other business entities.
How a simpler KYC Process Will Help You
PAN as a shared identifier could potentially simplify KYC processes, simplify access to public goods (including licenses and registrations), and simplify doing business. It can also act as a single data source not only for regulators but also for the distribution of private goods, such as financial services. With proper data security and confidentiality guarantees, PAN-related data can potentially be analyzed to determine eligibility for loans, investments, insurance and other financial products, improving, for example, access to loans for small and medium-sized businesses.
What’s new in Income Tax Regime
The Foreign Minister happily admitted that the personal income tax was the most anticipated tax announcement among other announcements. Tax rates/limits were changed in the interests of individual taxpayers, but certain conditions were attached to them. The previous regime under Section 115BAC provided for a differentiated tax structure with restrictions on certain deductions/benefits (the New tax regime), which clearly appeared as a mode of choice, making it the default tax scheme for individuals (i.e. applicable, unless an individual decides to choose the old regime, in which income was taxed at other tax rates, but deductions were allowed).
Simply put, under the old regime, income was taxed at 3% rates of 5%-20%-30% with a maximum rate of 30%, triggered in cases where income exceeded 10 lakhs. However, in such cases, the taxable income was calculated after reducing the amounts allowed as deductions, such as holiday travel allowance, etc., deductions under Section 80 for eligible investments, such as LIC, PPF, and mortgage interest, to name just a few. In addition, if the total income of an individual did not exceed 500,000 yen, the tax liability was zero.
Although the new tax regime has been applied since the 2020-21 tax year, it has found fewer applicants. To remedy this, the Ministry of Finance has relaxed the regime by increasing the maximum tax-free amount (from 500,000 to 700,000 rupees available under this option and changing the tax rates. Accordingly, the tax rates under the new tax regime remain revised in accordance with the following:
Although the new tax regime seems attractive, it will require an assessment of comparative advantages depending on the available deductions, which are indicated together with the objectives of his/her financial planning (for example, pre-determined amounts invested in PPF, health insurance premium) and his/her financial obligations (for example, the annual premium on the LIC policy, repayment the principal amount of the mortgage loan/interest, etc.). The following case study would help to better understand this:
Thus, in this case, the taxpayer would benefit by not choosing a new tax regime. In addition, the new tax regime is designed to provide tax benefits, both in terms of reducing tax outflow and ease of compliance (in terms of eliminating the need to invest/receive benefits, etc.).
Other Income Tax important announcements
Some other statements made by the Minister of Foreign Affairs that could affect individual taxpayers are listed below:
1. Rationalization of the maximum marginal rate (MMR): It is proposed to limit the maximum surcharge rate of 25% of the existing rate to 37%, reducing the total maximum marginal rate from -42% to -39%.
2. Increasing the threshold value for the proposed taxation scheme: in the case of suitable enterprises with a turnover of 2 crores to 3 crores and in the case of professionals with a turnover of 50 to 75 lakhs, provided that cash receipts do not exceed 5% of receipts/turnover.
3. Elimination of double deduction of interest on borrowed capital: It is proposed that the cost of acquisition/improvement does not include the interest claimed on borrowed capital if the deduction has already been claimed in accordance with section 24/ Chapter VI.
4. Extension of the provision on the recognition of gifts to “non-residents”: Gifts (money provided without remuneration) totaling more than 50,000 yen received by a person who is not an ordinary resident of India from a person residing in India are now taxed in India in accordance with Section 56(2)(x).
5. Recently, there has been an increase in the number of users of online games. From July 1, 2023, a new section 194BA will be introduced, providing for withholding tax deductions from winning income from online games exceeding 10,000 yen.
6. What an insurance policyholder must know is that (if the premium is paid over 5 lakh yen per year) income from other sources will be taxed. . However, even in such cases, income is released if the amount is received in the event of the death of the insured person.
7. The deduction of investments made in accordance with Section 54/54F from capital gains income should be limited to 10 crore yen.
8. Increase in the TCS rate for foreign money transfers and foreign trips: From July 1, 2023, the tax collection at the source rates has been significantly increased from 5% to 20% for the sale of foreign travel packages and for the transfer of LRS, with the exception of transfers for certain education or medical treatment.
While simplifying the overall tax structure is a welcome step, the goal of increasing disposable income in the hands of people at the bottom of the pyramid, combined with increased government spending on skills development in India and stimulating entrepreneurship, is a welcome step.