During the budget, every person, from a big corporation to a small businessman, looks after amendments in Income tax because it does not only impact pockets of taxpayers but also decides on compliances a business needs to carry out. Every extra compliance leads to an increase in cost and have other impacts as well.

Union budget 2023-24 has proposed various amendments in the Income tax act such as Change in slab rates, extended benefits to MSME Enterprises, relaxation in tax audits threshold limits, Relaxations for cooperative societies etc.

In this article a detailed discussion is made of amendments proposed in Income Tax Act, 1961 by Union Budget 2023-24:

1. Amendments in Personal Income Tax

• Union Budget, 2023-24 has proposed amendment in slab rates under section 115BAC (i.e., New Tax Regime) within an objective to reduce income tax liabilities.
• Following are the new slab rates:

• Further, tax rebate under section 87A has been increased from INR 12,500 to INR 25,000 under the new regime. Therefore, the threshold limit of exempted income has been increased from INR 5,00,000 to INR 7,00,000.
• Highest slab of surcharge has been reduced from 37% to 25%. Therefore, the highest rate of income tax has been reduced from 42.744% to 39%.
• New tax regime shall be the default scheme and if the taxpayer wants to opt for the old regime then he has to specifically opt the same.

Click here to read more about amendments in personal income tax.

2. Enhancement in Threshold limit of Presumptive Taxation

• Presumptive income allows ad hoc deduction of expenses for small business and professionals.
• Threshold limit to avail benefit of presumptive taxes has been enhanced:

• However, the benefit of enhanced threshold limit shall be provided where atleast 95% of receipts and payments are made through non-cash methods.

3. Amendment in TDS & TCS Provisions

• As per Section 194N, cash withdrawal from a bank exceeding INR 1 Crores is subject to TDS @ 2%. The Union Budget has proposed to enhance the threshold limit of INR 1 Crore to INR 3 Crores where the recipient is a Co-operative society.

• TDS on winning from online games shall be deducted at rates in force without any threshold limit. TDS shall be deducted at the time of withdrawal of funds or at the end of the Financial year.

• Interest to listed debentures has been brought under TDS ambit. TDS shall be deducted @ 10%.

• TDS on withdrawal of funds from employees provident funds (EPF) shall be deducted @ 20% in case of non-furnishing of PAN. Earlier TDS was required to be deducted at maximum marginal rate.

• Refund of TDS Deducted across Financial years
  • Taxpayers generally face addition with respect to income disclosed in ITR of a year and TDS on such income is deducted by the counterparty in subsequent financial year.
  • Union budget has provided that in such cases, assessee can make an application in prescribed form to the Assessing officer to claim benefit of such TDS.
  • Such an application can be filed within 2 years from the end of the financial year in which TDS has been deducted.
  • Further, the provisions of rectification shall also apply and the assessee also can make an application for rectification. For the purpose of rectification, a period of 4 years shall be reckoned from the end of the financial year in which such tax has been deducted. 

• As per Section 206AB, TDS shall be deducted at higher rate from specified persons, i.e., persons who have failed to file income tax returns. Union budget has excluded following persons from specified persons list:
  • a non-resident who does not have a permanent establishment in India;
  • a person who is not required to furnish the return of income for the assessment year relevant to the said previous year and is notified by the Central Government in the Official Gazette in this behalf.

4. Deductions to be allowed on payment basis

• In order to provide more security to MSME, the union budget has amended Section 43B to provide that deduction of sum payable to Micro, Small and Medium Enterprises (MSME) shall be allowed only on payment basis.
• So far, deduction for deposit taken from NBFC is permitted during the Financial year in which payment is made. Now, Government shall prescribe the list of NBFCs for Section 43B.

5. Lower rate of Income Tax for manufacturing cooperative societies

• A new section 115BAE is proposed to be inserted, which provides that following reduced rates of income tax shall apply:
  • Manufacturing co-operative societies (established on or after April 1st, 2023, and commencing production on or before March 31st, 2024): Income tax shall be charged at 15% (plus surcharge of 10% & cess)  [provided that specified incentives or deductions are not availed]. 
  • Income not derived or incidental to manufacturing or production: Income shall be charged at 22%.

6. Income tax on maturity proceeds of Life Insurance Policy

• Section 10(10D) provides that the amount received on maturity of life insurance policies is exempted from income tax subject to given conditions.
• Union budget has proposed to withdraw such exemption on insurance policies, other than unit linked insurance policies, issued on or after 01.04.2023 if the amount of premium payable exceeds INR 5 lacs for any of the previous year during the term of policy.
• In case of more than one life insurance policies, other than ULIP, threshold hold of INR 5 Lacs shall be checked for all premiums paid during the year.
• However, such exemption is not withdrawn on the sum received on death of a person.
• Amount received on maturity, net of non-tax deducted premium, shall be taxed under head “Other Incomes” in the year of receipt.

7. Exemptions to Newly established Units in Special Economic Zones (Section 10AA)

• Section 10AA provides for 100% and 50% deduction of profit derived from the export by newly set-up units in SEZ.
• As per amendments, deduction under section 10AA shall be provided only if return is filed within the due date specified u/s 139(1).
• Further, Deduction shall only be allowed if the proceeds from the sale of goods or provision of services are received within 6 months from the end of the previous year or within such further period as the competent authority may allow in this behalf.

8.  Amendments in Capital Gain

• Similar to goodwill, cost of acquisition and cost of improvement of self-generated intangible assets and rights shall be considered as “NIL” while computing capital gains on sale of such asset.
• Capital gain arise on transfer or redemption or maturity of Market Linked Debenture shall be considered capital gains arising from the transfer of a short-term capital asset. Further, while computing such capital gain, no deduction shall be allowed in respect of securities transaction tax.
• Investment under Section 54 and Section 54F has been capped for INR 10 Crores. Therefore, if cost of new asset exceeds INR 10 Crores, the amount exceeding INR 10 Crores shall not be taken into account.
• The transformation of physical gold into Electronic Gold Receipts and vice versa by a Vault Manager registered with the Securities and Exchange Board of India (SEBI) shall not be considered as a transfer for purposes of capital gains taxation. 
• While computing cost of acquisition of the asset or the cost of improvement, no additional shall be made of interest expense for which deductions are already claimed u/s Section 24(b) or or Chapter VI-A of Income Tax Act.

9. Other Amendments

• Benefit of Section 115BAC (i.e., new tax regime) is proposed to be extended to Association of Persons (AOP) (other than co-operative societies), Body of Individuals (BOI) and Aritifical Judicial Persons (AJP). This will help in reduction of Income tax liabilities. 
• For the purpose of claiming deductions under section 80-IAC, incorporation date of eligible start-ups is proposed to be extended from 1st April, 2023 to 1st April, 2024.
• The exemption can be claimed by trusts or institutions only if return of income is furnished within time limit prescribed under section 139(1) or 139(4).
• Government has provided for a new appellate authority, the Joint Commissioner (Appeal), for specific categories of taxpayers, such as individuals and HUFs, to speed up the resolution process in appeal proceedings.